Interpretation assignment Essay Example | Topics and Well Written Essays - 1500 words

Interpretation assignment - Essay Example These financial metrics point to the safety for the creditors and long-term loaners of the company; hence a low ratio becomes a point of concern for the stakeholders. The improvement in the current ratio as well as the quick ratio indicates that the company is now in a better position to pay its term obligations. This improvement is largely due to increase in the current assets especially cash and equivalents, and short term investments. Nike held $3.47 in 2013 as compared to $3.05 in 2012 for every $1 of short term liabilities as shown in appendix. Likewise, the company’s current ratio is almost at par with the industry average. Similarly, the company has seen a drastic improvement in the quick ratio in 2013 as compared to 2012. Nike held $2.31 in 2013 as compared to $1.93 in 2012 for every $1 of short term liabilities as shown in appendix. Compared to the industry average, the company leads the market with a high ratio. The improvement is again associated to the large invest ments in cash as well as marketable securities. The inventories, prepaid and deferred taxes only saw slight increments. Therefore, the liquidity analysis shows that Nike is in a better position to handle any unexpected current liabilities and contingencies in 2013 as compared to 2012, and compared to its industry rivals. PROFITABILITY ANALYSIS Nike’s revenues grew by 11% in 2013. ... The company’s gross margin improved by 10 basis points in 2013 as shown in appendix; however, this improvement was due to higher net selling prices rather than the efficiency and effectiveness of the management and assets. At the same time, the company saw an increase in the labor costs associated with Nike product making which decreased the gross margins. Nike contributed 43.6c in 2013 and 43.5c in 2012 to the gross profit for every $1 sale made by the company as shown in appendix. Compared to the industry average, Nike has a better margin and is one of leaders of the industry. The net margin measures the ability of the company to control its indirect expenses associated with the company’s working. Nike saw an improved net margin in 2013 when it increased by 30 basis points as shown in appendix. However, the increment could have been much higher; but the company was unable to manage its increments in costs. The selling and administrative expenses increased by 10% in 20 13 due to increase in personnel costs and advertising expense during the Olympics. Nike contributed 9.8c in 2013 as compared to 9.5c in 2012 to the net profit for every $1 sale that is made by the company as shown in appendix. Compared to industry average, the company has a moderate net margin and needs to improve in the coming years. However, the quality of the income was not favorable in 2013. The increment was mainly due to increase in the net selling prices of the Nike products all over the world. The return on equity, an important metric from an investor’s point of view, measures the return earned by the owners of the company. The company’s return on equity increased by 90 basis points in 2013 due to an increase in the