Analyzing Nike's Financial Performance: Profitability & Solvency
School
Cape Breton University**We aren't endorsed by this school
Course
BUSINESS A 5103
Subject
Accounting
Date
Dec 11, 2024
Pages
2
Uploaded by ColonelSparrow4782
Accounting Case 4Yanpei Huang (Jeffrey)20153614Q1:1) Measures of solvency represent a company`s ability to offset its long-termobligations, while that of profitability represent a company`s ability to generate profit.2) Because long-term creditors care about whether a company has enough ability tooffset its liabilities and they want money, securities and interest. As owners ofcompanies, they care about whether the company can generate more money andwhether the stock price will go up. All of the information mentioned above could bededuced by analysing ratios.Q2:1) Current ratio at May 31,1995 = $2,045,928,000/$1,107,535,000 = 1.85at May 31 1994 = $1,770,431,000/$561,987,000 = 3.152) Working capital in 1995 = $2,045,928,000 − $1,107,535,000 = $938,393,000In 1994 = $1,770,431,000 − $561,987,000 = $1,208,444,0003) Gross margin percent for 1995 = $1,895,554,000 ÷ $4,760,834,000 = 39.82%for 1994 = $1,488,245,000 ÷ $3,789,668,000 = 39.27%4) Return on equity for 1995 = $399,664,000 ÷ $1,852,819,000 = 0.22for 1994 = $298,794,000 ÷ $1,691,884,000 = 0.185) Tax rate in 1995 = $250,200,000 ÷ $649,864,000 = 38.5%In 1994 = $191,800,000 ÷ $490,594,000 = 39%Return on assets for 1995 = $414,552,000 ÷ $2,758,280,000 = 0.1503for 1994 = $308,116,000 ÷ $2,280,042,000 = 0.1351Q3: Nike made more money in 1995 than 1994.After analysing income statement, we can compute that total revenue in 1995increased around 25.6%, while net income went up 33.8%. Nike earned much benefitin 1995,Revenue increased percentage = $971,166,000 ÷ $3,789,668,000 = 25.6%Net income increased percentage = $100,870,000 ÷ $298,794,000 = 33.8%Q4: Nike was more profitable in 1995 than 1994.Consider measures of profitability, obviously, it could be found that gross profit ratioincreased from 39.27% in 1994 to 39.82% in 1995, return on assets went up from0.1351 in 1994 to 0.1503 in 1995, return on equity rose from 0.18 to 0.22 at the end of1995. Though all changes seem narrow, the positive increase made a significant effortto its growth, espicially for such a huge international company. Besides, the change ofearnings per share could be more apparent. It increased from $3.96 per share in 1994to $5.44 per share eventually, rising around 37.4%, which illustrated that shareholderscan earn more money and they then might invest again. Thus, Nike became profitable.
Q5: Nike had $216,071,000 cash at May 1, 1995, according to both of balance sheetand the statement of cash flow.Q6:Yes,it was.Firstly, Nike`s current ratio in 1995 was 1.85. Although the figure was less than thatof 1994, it was still near 2 that showed the company was in a healthy position. Moreobviously, Nike`s working capital in 1995 was $938,393,000, which was an extremelygreat number that can easily offset the company`s short-term obligation.Q7: Nike`s operations were a source of cash in fiscal 1995.According to the statement of cash flow in fiscal 1995, it could be simply found thatthe cash provided by operations was $254,913,000, which was a positive number.Thus, Nike`s operations earned money so that the operations were a source of cash.Q8: Nike`s major source of cash was its operations, which brought $254,913,000 infiscal 1995. In addition, its financing activities were also a source of cash in 1995,bringing $24,858,000 in total. The main use of money was its investing activities,espicially the acquisition of subsidiaries and the purchase of equipment in 1995.Totally,itsinvestingactivitiesusedup$581,394,000in1995,butallofitsinvestments would benefit the company in the near future.