Nike Financial Performance Quiz

Nike Financial Performance Analysis

• Nike's interest expense as a percentage of sales is a measure of how much of its sales revenue is spent on interest, which impacts the company's profitability.
• The pretax margin, as a percentage of sales, indicates Nike's profitability before taxes, and comparing it to its peers provides insight into its performance in the industry.
• Taxes, as a percentage of sales, reflect Nike's tax rate and its changes over time, where a lower rate is considered more favorable for the company.
• The balance sheet ratios, in combination with the income statement, help investors assess the investment and financing stages of Nike's cash cycle and evaluate its efficiency.
• Accounts receivable and DSO metrics reveal how long it takes Nike to collect cash from customers, reflecting the efficiency of its cash flow and the amount tied up in receivables.
• Inventory days measure how long it takes Nike to sell its inventory and the cash tied up in each inventory day, offering insights into its inventory management.
• Facility efficiency, or the spending on Property Plant and Equipment (PP&E) to generate sales, indicates Nike's operational efficiency in producing goods and services.
• The productivity of invested capital, measured by dividing invested capital by sales, reflects how much financing is required to generate a dollar of sales and its changes over time.
• The length of Nike's cash cycle and its changes over time provide an understanding of the time it takes to turn investment into sales and collect cash.
• Return on Invested Capital (ROIC) measures the profit generated for every dollar of investment and compares it to the cost of capital (WACC) to assess Nike's value creation and performance.
• Nike's interest coverage ratio indicates how many times it can repay interest with its business profits, reflecting its ability to service its debt.
• Current assets versus current liabilities help determine if Nike has enough cash to meet its short-term obligations, providing insight into its liquidity and financial health.

Nike Financial Analysis Summary

• Positive profit means generating more cash than spending, negative profit means the opposite
• Net income is the cash available for repaying shareholders or reinvesting in the firm
• Return on sales (ROS) is net income as a percentage of sales, indicating profit on final sale
• Cost of goods sold represents direct expenses associated with a product or service
• Gross profit is what remains after subtracting direct product costs from revenue
• Gross margin is the difference between the price and the product or service direct cost
• Selling, general, and administrative (SG&A) costs are indirect costs of running operations
• Higher gross margin often leads to increased spending on indirect operating expenses
• EBITDA represents the cash profit from operations at running the business
• EBIT is operating income, representing what is left after running and paying for business operations
• EBIT margin as a percentage of sales indicates how much profit a company generates from operations
• Financing costs include interest expenses on debt, leading to pretax profit after their deduction