35 Questions
What does a current ratio above 1 suggest?
The company will have enough cash to pay liabilities in the next year
What is the purpose of financial statement analysis?
To understand the story that financial statements can tell about an organization
How is liquidity defined in the context of current ratio?
Ability to pay off liabilities without borrowing
What are the two common formats used for financial statements in the US and internationally?
GAAP and IFRS
What does a quick ratio exclude from current assets?
Inventory
What do external financial statements provide?
A general perspective of how the organization is doing
What does a quick ratio assess in terms of generating cash?
Ability to generate cash in the short term to repay liabilities
What is the purpose of the standardized formats for financial reporting?
To enable viewing information in a commonly accepted format
How can a low current ratio be offset?
As long as the company has access to financing or a line of credit
What is the role of financial statements in financial statement analysis?
To tell the story about an organization
What form is filed for significant interim information?
Form 8-K
Which financial statement measures financing and investments?
Balance sheet
What does the income statement evaluate?
Company's ability to generate cash from operations
What does tax reporting require companies to file?
A different set of books under distinct rules for tax purposes
What does benchmarking involve in financial statement analysis?
Comparing a company's ratios to its peers in the industry
What does the interest expense as a percentage of sales measure for Nike?
Impact on company's profitability
What does the pretax margin, as a percentage of sales, indicate about Nike?
Profitability before taxes
What does the inventory days metric measure for Nike?
Time to sell inventory and cash tied up
What does Return on Invested Capital (ROIC) measure for Nike?
Profit generated for every dollar of investment
What does the current assets versus current liabilities help determine for Nike?
If Nike has enough cash to meet its short-term obligations
What does a positive profit indicate?
Generating more cash than spending
What is EBITDA?
Cash profit from operations at running the business
What does Return on Sales (ROS) indicate?
Net income as a percentage of sales, indicating profit on final sale
What is the Gross Margin?
The difference between the price and the product or service direct cost
What do Financing costs include?
Interest expenses on debt, leading to pretax profit after their deduction
What does Return on Sales (ROS) measure for a company?
Net income as a percentage of sales, indicating profit on final sale
What does Gross Margin represent in financial analysis?
The difference between the price and the product or service direct cost
What is the purpose of EBITDA in financial assessment?
To represent the cash profit from operations at running the business
What do Selling, General, and Administrative (SG&A) costs represent in financial terms?
Indirect costs of running operations
What does financing costs include in financial statements?
Interest expenses on debt, leading to pretax profit after their deduction
What is the definition of positive profit?
Generating more cash than spending
What does EBITDA represent?
The cash profit from operations at running the business
What does Return on Sales (ROS) measure?
Net income as a percentage of sales
What are Selling, General, and Administrative (SG&A) costs?
Indirect costs of running operations
What is the purpose of Gross Margin?
To indicate the difference between the price and the product or service direct cost
Study Notes
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
Test your knowledge of Nike's financial performance with this quiz on key financial terms and metrics. Learn about profit, net income, return on sales, cost of goods sold, gross profit, EBITDA, and more.
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