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noted for the last lecture of the class easy isntructions to follow easy to follow notes for the final of...

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Zavala

Benchmark-Interpreting Financial Statements Gabriel Zavala Bus-317 Professor Brynsaas

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Zavala Abstract I will be comparing and analyzing which company is better in three different categories, solvency, liquidity, and profitability ratio. Giving me the opportunity to read each individual companies financial statements while displaying and comparing Nike and Adidas to see who is the leader in their industry. Comparing all three categories will allow me to see who is more successful.

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In the athletic wear industry, there are two major companies, always competing for the number one and number two spot in popularity, revenue generated and so forth. Over the years these two companies have been Nike and Adidas, the two companies have seen the test of time and have evolved and adapted to new trends, consumers, and way of making purchases. I will take a look into these two company’s liquidity, probability, and solvency while comparing the two companies and see how they match up against one another. The first thing I am going to look into and compare is the liquidity amongst the two companies. First one must know what liquidity is and the exact purpose that liquidity plays amongst a company. Liquidity is the ability to pay debt and obligations that are due in the next operating cycle or year (“its ability to pay obligations expected to become due within the next year or operating cycle.” Kimmell & Weygandt, 2019). While comparing the two companies’ liquidity Nike currently holds at 3.19 and for Adidas it is at 1.54, The sole purpose of liquidity is to give a glimpse and view of how easily a company is able to pay off debt or its current obligations and liabilities (“The current ratio helps users determine if a company can meet its near-term obligations”. Kimmell & Weygandt, 2019). For liquidity the higher the number the better it is for a company, it allows investors to be more willing to invest in a company. The industries average ratio stands at 1.6 and 1.04 in comparison to Nike and Adidas, Nike is performing at a higher average in the two ratios. While Adidas is not and is underperforming in both ratios. Liquidity is also important when investors are looking into investing and solvency in this case Nike would be the best choice. The next is Solvency which is the company’s ability to pay both debt and interest when it is due when it is at its highest (“solvency—its ability to pay interest as it comes due and to repay the balance of a debt due at its maturity” Kimmell & Weygandt, 2019). Along with the solvency

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also comes the solvency ration which is the measurement of a company’s ability to last and survive over a long period of time (“Solvency ratios measure the ability of the company to survive over a long period of time.” Kimmell & Weygandt, 2019) Allowing Nike and Adidas to be great candidates for the solvency ratio, seeing they have been around for decades. In comparing the two company’s solvency ratio, this how the two compares against one another, Nike has a solvency ratio of 0.31 in comparison to Adidas which is 0.22 which is far better than the average in their field which is 0.42. The higher the Solvency ratio the worst it can be for a company, it can mean that a company has taken loans to help it stay afloat or grow. Profit is often measured in the amount of revenue that is generated by a company both yearly, monthly, and quarterly. This is something that id often compared amongst companies to see how successful they were for the quarter or year. Profit ratio is measuring the success of a company during a specific time frame (“Kimmel & Weygandt, 2019”). Nikes profit ratio currently is 41.91 compared to Adidas which is 31.31. The ratio for the average in the industry is currently the same as Nikes and Adidas falls underneath the Average. This allows more investors interest to invest in a company to gain earnings. With the earnings ratio comes the return on asset, which is the evaluation of the profitability on product or service (“An overall measure profitability is the return on assets” Kimmel & Weygandt, 2019). Adidas return on assets is at a 8.0, while Nike’s is at a 17.1, compared to the market average which is 9.45. Having a higher return on assets means that the company is making more revenue from its products or services. While comparing the two Juggernaut of companies it is clear after reviewing and comparing solvency, profitability ratio, liquidity. That Nike is the one that is currently number one, while Adidas may not be far behind it is above the average and is out performing its competitors.

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Re f e r e nc e s

Ki mme l , P . D. , &We y g a nd t ,J . J . ( 2 0 1 9 ) . Su r v e yo fAc c o u n t i n g , En h a n c e de Te x t( 2 n dEd i t i o n) . Wi l e yGl ob a lEd u c a t i onUS. h t t p s : / / wi l e y p l u s . v i t a l s o ur c e . c o m/ bo o k s / 9 7 81 1 19 5 9 13 4 4

St o c kq uo t e s , b u s i n e s sn e wsa n dda t af r o mSt o c kMa r k e t s :MSNmo n e y . St o c kQu o t e s ,Bus i n e s s Ne wsa n dDa t af r o mSt o c kMa r k e t s| MSNMo n e y . ( n . d . ) . Re t r i e v e dOc t o be r1 8, 2 0 2 1, f r om h t t p s : / / www. ms n . c o m/ e nu s / mo ne y ....