According to Nike’s SIC number (3021), the company is classified in the “rubber and plastic footwear” industry. Relying upon this information Mergent Online identified the following American companies as competitors to Nike:
•Columbia Sportswear Company Annual Revenue $ 1,483,524,000 •Deckers Outdoor CorporationAnnual Revenue$ 1,000,989,000 •Crocs, Inc.Annual Revenue$ 789,695,000
•Bakers Footwear GroupAnnual Revenue$ 185,625,844
•LaCrosse Footwear, Inc.Annual Revenue$ 150,542,000 •PC Group, Inc.Annual Revenue$ 44,989,046
With 2010 annual revenue of $19,014,000,000, Nike’s revenue was substantially greater than the identified competitors. Due to the revenue difference and the lack of athletic footwear company in the list, I expanded the analysis to include the German company Adidas. Adidas is listed under SIC 5139 – Footwear. Despite the SIC differences, Adidas and Nike are the most direct competition for the athletic market. In addition, Adidas’ 2010 revenue converted to USD is $ 16,047,083,997.
One common thread between all of these companies is the reliance upon consumers. As the economy has been struggling over the past few years, the amount of disposable income has decreased. Have these companies managed to thrive or struggle during this recession? To analyze Nike’s financial standing compared to their competitors, I have focused on the larger revenue companies and omitted Bakers Footwear Group, LaCrosse Footwear, Inc. And PC Group from the analysis.
A good indicator of the financial health of a company is its ability to meet short term obligations:
Current RatioQuick Ratio
Columbia Sportswear Co.3.918.104.22.168
Deckers Outdoor Corp.4.945.163.884.15
The current ratio calculates total assets against total liabilities. The main difference between the current and quick ratio is that the quick ratio omits inventory from the calculation. The quick ratio takes a more conservative approach because some companies will be unable to convert their entire inventory to cash. Nike’s ratios are much better than their direct competitor, Adidas, and right in line with the other companies.
While Nike is able to meet their short term obligations, investors and analysts need to see if the company is profitable and how effective they are at turning their assets into cash or sales:
Gross Profit MarginNet Profit MarginReturn on AssetsReturn on Equity PROFITABILITY RATIOS20102009201020092010200920102009 NIKE, Inc46%45%10%8%13.22%11.22%20.67%18.00%
Columbia Sportswear Co.42%42%5%5%5.95%5.53%7.71%6.90% Deckers Outdoor Corp.50%46%16%14%19.85%19.52%27.95%26.69% Crocs Inc54%48%9%-7%12.33%10.27%20.41%-14.64%
Gross profit margin for Nike is consistent with the industry averages and showing a slight increase from the previous year. Net profit margins are actually better than Adidas’ and also showing an increase over the prior year. In reviewing the Return on Assets and Equity, Nike is very solid. The numbers again demonstrate that Nike’s profit is increasing over 2009 and the investors are able to reap the rewards.
With the profitability ratios increasing over 2009 and Nike’s return on assets and equity very solid for the industry, we will look at the asset management ratios to see if they support the profitability ratios. The asset management numbers will look at the speed inventory is turned into sales (inventory turnover), how effective is the company at utilizing assets to generate sales (total asset turnover), effectiveness of company to use property, plant, and equipment to generate sales (fixed asset turnover), effectiveness of...