Nikenikes Performance Measures 2019

Nikenikes Performance Measuresperformance Measures2019

Analyzing the financial performance of Nike and Under Armour involves examining various key performance indicators (KPIs) across different financial dimensions, including market value, profitability, efficiency, leverage, liquidity, and operational metrics. This comprehensive assessment provides insights into each company's strengths, weaknesses, and overall financial health within the competitive sportswear industry.

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Introduction

In the highly competitive athletic apparel and footwear industry, understanding and interpreting financial performance measures is crucial for stakeholders, including investors, management, and analysts. This paper offers a comparative analysis of Nike and Under Armour, utilizing key financial metrics from 2016 to 2019. These measures include market value added, profitability ratios, efficiency ratios, leverage, and liquidity metrics, illustrating how each company has progressed over the years and their relative strengths.

Market Value and Value Creation

Market value added (MVA) reflects the company's ability to generate value for shareholders beyond the book value of equity. Nike's MVA experienced significant growth, reaching approximately $117 billion in 2019, signaling strong investor confidence and significant market capitalization. The market-to-book ratio further underscores Nike's valuation premium, reaching 13.64 in 2019, indicating investor expectations of growth and profitability. In contrast, Under Armour's MVA was relatively modest at around $7.7 billion, with a lower market-to-book ratio of 4.56 in 2019, suggesting less perceived market value creation and investor optimism compared to Nike. These valuations reflect market perceptions of brand strength, growth prospects, and overall strategic positioning.

Profitability Ratios

Profitability measures such as return on assets (ROA), return on capital (ROC), and return on equity (ROE) are indicative of how effectively each company utilizes its assets and equity to generate income. Nike reported an impressive ROA of 16.99% in 2019, demonstrating efficient utilization of its assets to produce profits. Its ROE was even higher at approximately 44.7%, reflecting excellent leverage and shareholder return. Conversely, Under Armour's ROA stood at 2.89% in 2019, with a negative trend in prior years, signaling challenges in asset utilization and profitability. The company's ROE also lagged significantly at around 4.29%, illustrating operational and strategic difficulties. The Economic Value Added (EVA) further highlights Nike's value creation, with approximately $117 billion in 2019, whereas Under Armour's EVA was considerably lower, around $7.7 billion, emphasizing Nike's superior capacity to generate shareholder value beyond accounting profits.

Efficiency Ratios

Operational efficiency is assessed using asset turnover, receivables turnover, inventory turnover, and days sales outstanding. Nike's high asset turnover ratios (around 1.65 in 2019) suggest effective utilization of assets to generate sales, supported by quick receivables collection periods (~39-54 days). Its inventory turnover ratio of approximately 3.85 indicates efficient inventory management, which is crucial in the apparel industry. Under Armour demonstrated even higher asset and receivables turnover ratios, reflecting rapid sales cycles and effective collection processes. However, its inventory turnover was slightly higher, at about 4.3, but days in inventory were longer (~133-58 days), which might indicate excess inventory or slower movement of stock. These efficiency metrics reveal Nike's optimized asset deployment, which correlates with its strong profitability and market valuation.

Leverage Ratios

Capital structure analysis indicates the level of financial leverage and risk. Nike maintained a relatively conservative debt profile, with long-term debt ratios near 27.7% in 2019, suggesting balanced leverage financing. The debt to equity ratio was approximately 38.32%, indicating moderate reliance on debt for growth. Its interest coverage ratios (~38 times) and cash coverage (~44) point to strong debt affordability and low financial risk. In comparison, Under Armour's leverage was somewhat higher, with long-term debt ratios around 35.3% and debt-to-equity ratios exceeding 54%. Interestingly, Under Armour's interest coverage ratios were exceedingly high (~1114.74%), possibly reflecting small interest expenses relative to EBIT, but the variability in these ratios emphasizes differing debt management strategies. Both companies exhibit manageable leverage, but Nike’s conservative approach translates into lower financial risk and more stability.

Liquidity Indicators

Liquidity ratios measure the firms’ capacity to meet short-term obligations. Nike’s current ratio hovered around 2.8 to 2.93 from 2017 to 2019, indicating good liquidity. Its quick ratio remained above 1, affirming sufficient liquid assets to cover current liabilities. Under Armour displayed even higher liquidity ratios, with current ratios above 2.8 and quick ratios exceeding 1.11, demonstrating ample short-term financial flexibility. Net working capital to assets ratios for both entities suggest strong operational liquidity, with Nike slightly ahead, indicative of effective cash and working capital management.

Operational and Strategic Implications

Overall, Nike's financial metrics from 2016 to 2019 reflect robust operational efficiency, profitability, and prudent leverage, leading to high market valuation and investor confidence. The company's ability to generate high ROE, maintain healthy liquidity, and efficiently manage assets underscores its competitive advantage. Conversely, Under Armour faced challenges in profitability and asset utilization, although it showed strengths in operational efficiency and liquidity, perhaps reflecting differences in market positioning and brand strength.

Conclusion

In summation, Nike has demonstrated superior financial performance over the analyzed period, underpinned by high profitability, effective asset utilization, and manageable leverage, culminating in a substantial market value and shareholder wealth creation. Under Armour, while showing potential with high efficiency ratios, lagged in profitability and market valuation, indicating areas for strategic improvement. Continuous focus on operational efficiency, cost management, and innovation will be key for both companies to sustain growth and shareholder value in a competitive landscape.

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