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Nike Company

Financial Ratio Analysis

 
• Liquidity Ratios
• Current Ratio
• Quick Ratio
• Leverage Ratios
• Total Debt-to-Assets Ratio
• Debt-to-Equity Ratio
• Activity Ratios
• Inventory Turnover Ratio
• Days of Inventory Ratio
• Profitability Ratios
• Total Return on Assets Ratio
• Return on Equity Ratio
• Results of Financial Analysis
• Interpretation/Evaluation
 
For all ratios,
 
1. Make sure you discuss “NORM” or “ACCEPTED” or “average” industry value of each ratio
2. Tell us whether “higher” ratio is better or worse and why
3. Identify, where possible, reasons for your firm’s performance
 

Financial Ratio Analysis

 
This analysis will help determine the financial health of the company. A total of eight financial ratios are evaluated, compared and analyzed.
Make sure to provide a graph (similar to a sample graph below) for each ratio showing your company and also industry performances/data.
 
Liquidity Ratios: Describe what this ratio means. Two ratios, current ratio and quick ratio, are evaluated and analyzed.
 
Current Ratio: This ratio shows/indicates the company’s ability to meet its current financial liabilities (formulae are given in the Appendix).For the XXXX, a norm of this ratio ranges from 0.5 to 0.7.
 
Over the past four years, current ratio for Coca-Cola has been declining. Some of the reasons for the decline include: ….
 
Over the same time period, this ratio for the industry also has been declining, but at a slower rate. Compared to the industry, …. If you have any suggestions, you may want to include them here.
Do the same thing for the remaining seven ratios
 

Valuable Material

Financial Ratio Analysis

 
A lead in paragraph. You may start this lead-in paragraph with: “Financial analysis will help determine the financial health of the company. A total of eight financial ratios for at least four years are evaluated, compared and analyzed.”
For each of the ratios, first discuss what a ratio being analyzed means, and then what it tells the executive. For instance, inventory turnover ratio indicates the effectiveness of the firm in employing (controlling) inventory. Also, indicate whether a higher number of ratio is better or worse (e.g., higher the inventory turnover ratio, the better it is because you are very effective in controlling your inventory). Or identify an industry norm (a range) for some of the ratios (i.e., liquidity ratio for your industry should be between 0.5 and 1). Review/assess the trend in each ratio for your company and determine whether it exhibited an improving, steady or declining trend. Similarly, you MUST review/assess the industry ratios and trends. Then compare your company ratios and trends with those of the industry. This will help you determine if your company’s performance is above average or not. You need to develop an Excel chart for each of the eight ratios. Each ratio needs to be addressed under its own separate sub-heading or sub-paragraph
 

Liquidity Ratios

 
Discuss in general what these ratios indicate or what they measure. Then, you might state: “Two ratios, current ratio and quick ratio are evaluated and analyzed.”
 

Current Ratio

 
Describe in detail what this ratio measures, what it means, what it tells an executive, etc. Identify if there is a “benchmark” or “norm” value (or a range) for this ratio for your industry. If a norm value is not appropriate, then indicate whether a higher number of ratios is better or worse. For instance, you may start with: “This ratio shows/indicates the company’s ability to meet its current financial liabilities (formulae are given in the Appendix). For the industry, a norm of this ratio ranges from 0.5 to 0.7.”
Develop a chart (an Excel chart – similar to that shown below) for this ratio (show both your company’s ratio values and industry ratio values). First, analyze/assess the trend in this ratio for your company and determine whether it exhibited an improving, steady or declining trend. You might want to state that: “Over the past four years, current ratio for XXXX (your company’s name) has been declining. Some of the reasons for the decline include: ….”
 
Then analyze the industry trend. Compare your company ratio and trend with those of the industry. Is your company below the industry average? If so, what might some of the reasons be (and what you might suggest to correct it)? Investigate and discuss potential causes for the adverse trend, and offer suggestions or recommendations to resolve the potential problem and improve the ratio.
 

Quick Ratio

 
Do similar analysis/assessment/evaluation that you did for the “current ratio” above (make sure you have provided adequate details to support your evaluation/assessment).
 

Leverage Ratios

 
Discuss in general what these ratios indicate or what they measure. Then, you might state: “Two ratios, debt to asset ratio and debt to equity ratio, are evaluated and analyzed.”
 

Total Debt-to-Assets Ratio

 
Describe in detail what this ratio measures, what it means, what it tells an executive, etc. Identify if there is a “benchmark” or “norm” value (or a range) for this ratio for your industry. If a norm value is not appropriate, then indicate whether a higher number of ratio is better or worse.
 
Develop a chart (an Excel chart) for this ratio (similar to the chart shown above). Show both your company’s ratio values and industry ratio values on the chart. First, analyze/assess the trend in this ratio for your company and determine whether it exhibited an improving, steady or declining trend. Try to determine potential causes for the trend.
 
Then analyze the industry trend. Compare your company ratio and trend with those of the industry. Is your company below the industry average? If so, what might some of the reasons be (and what you might suggest to correct it)?
Investigate and discuss potential causes for the adverse trend as applicable, and offer suggestions or recommendations to resolve the potential problem and improve the ratio.

Debt-to-Equity Ratio

 
Do similar analysis/assessment/evaluation that you did for the “debt-to-Assets ratio” above (make sure you have provided adequate details to support your evaluation/assessment).
 

Activity Ratios

 
Discuss in general what these ratios indicate or what they measure. Then, you might state: “Two ratios, inventory turnover ratio and total asset turnover ratio, are evaluated and analyzed.”
 

Inventory Turnover

 
Describe in detail what this ratio measures, what it means, what it tells an executive, etc. Identify if there is a “benchmark” or “norm” value (or a range) for this ratio for your industry. If a norm value is not appropriate, then indicate whether a higher number of ratio is better or worse (e.g., higher the inventory turnover ratio, the better it is because you are very effective in controlling your inventory).
Develop a chart (an Excel chart) for this ratio (similar to the chart shown above). Show both your company’s ratio values and industry ratio values on the chart. First, analyze/assess the trend in this ratio for your company and determine whether it exhibited an improving, steady or declining trend. Try to determine potential causes for the trend.
 
Then analyze the industry trend. Compare your company ratio and trend with those of the industry. Is your company below the industry average? If so, what might some of the reasons be (and what you might suggest to correct) it?
Investigate and discuss potential causes for the adverse trend as applicable, and offer suggestions or recommendations to resolve the potential problem and improve the ratio.
 

Days of Inventory

 
Do similar analysis/assessment/evaluation that you did for the “inventory turnover” above (make sure you have provided adequate details to support your evaluation/assessment).
 

Profitability Ratios

 
Discuss in general what these ratios indicate or what they measure. Then, you might state: “Two ratios, return on assets ratio and return on equity ratio, are evaluated and analyzed.”
 

Total Return on Assets

 
Describe in detail what this ratio measures, what it means, what it tells an executive, etc. Identify if there is a “benchmark” or “norm” value (or a range) for this ratio for your industry. If a norm value is not appropriate, then indicate whether a higher number of ratio is better or worse
 
Develop a chart (an Excel chart) for this ratio (similar to the chart shown above). Show both your company’s ratio values and industry ratio values on the chart. First, analyze/assess the trend in this ratio for your company and determine whether it exhibited an improving, steady or declining trend. Try to determine potential causes for the trend.
 
Then analyze the industry trend. Compare your company ratio and trend with those of the industry. Is your company below the industry average? If so, what might some of the reasons be (and what you might suggest to correct) it?
Investigate and discuss potential causes for the adverse trend as applicable, and offer suggestions or recommendations to resolve the potential problem and improve the ratio.
 

Return on Equity

 
Do similar analysis/assessment/evaluation that you did for the “Total Return on Assets” above (make sure you have provided adequate details to support your evaluation/assessment).
 

Results of Financial Analysis

 
From the above financial analysis, identify and discuss any findings/conclusions that should enhance your company’s ability to pursue business opportunities (considering the opportunities identified previously in the external analysis) and any findings that may hinder your company’s ability to pursue business opportunities. In your narrative identify the financial ratios that support your findings.
 

Interpretation/Evaluation

 
This is where you would summarize your company’s Strengths and Weaknesses. These must be based on (or should be derived from) your analyses of (1) the value chain, and (2) the company’s financial situation. Please ensure that you identify your company’s specific Strengths (that would form the basis for the company’s capabilities, distinctive competencies, and competitive advantages) and Weaknesses (that you would be protecting/defending your company from). In other words, summarize your company’s Strengths and Weaknesses and how they may be used to take advantage of the Opportunities and perhaps diminish the Threats. You should include a chart that summarizes your SWOT analysis narrative (see below).

Product code: Finance-QA341

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