Ratio Analysis of Adidas and Nike

Course Title | Introduction to Financial Management

Course code | FIN254
Section | 14
Submitted To: Mohammad Sarwar Rekabder
(MRE)

Prepared by :
Syed San Niazi | ID-2221757630
Jabin Aminul Islam| ID-2221830630
Omar Al Fahad | ID-2221637630
Raisan Ahmed | ID-2131278630
 TABLE OF CONTENT
Executive Summary.....................................................................................................................1
INTRODUCTION...........................................................................................................................2

LIQUIDITY RATIO..........................................................................................................3
Current Ratio..................................................................................................................... 3
Quick Ratio.................................................................................................................... 3
ACTIVITY RATIO............................................................................................................4
Inventory Turnover........................................................................................................ 4
Average Age of Inventories (days)................................................................................ 4
Accounts Receivable Turnover (times)......................................................................... 5
Accounts Receivable Turnover (days)...........................................................................6
Accounts Payable Turnover (times)...............................................................................6
Accounts Payable Turnover (days)................................................................................7
Total Asset Turnover (times)......................................................................................... 8
Debt Ratio...................................................................................................................... 9
Times Interest Earned.................................................................................................... 9
PROFITABILITY RATIOS............................................................................................10
Gross Profit Margin..................................................................................................... 10
Operating Profit Margin...............................................................................................10
Net Profit Margin......................................................................................................... 11
Earnings Per Share.......................................................................................................11
Return on Assets (ROA).............................................................................................. 12
Return on Equity (ROE).............................................................................................. 12
MARKET RATIO............................................................................................................13
Price/Earnings (P/E) Ratio...........................................................................................13
Market to Book (M/B) Ratio....................................................................................... 13
INTERPRETATION & RECOMMENDATION..........................................................14
Conclusion........................................................................................................................ 32
 1

Letter of Transmittal
11th June 2024

Mohammad Sarwar Rekabder

Senior Lecturer, Department of Accounting and Finance, School of Business and
Economics.
North South University

Subject: Submission of project on “Ratio Analysis of Nike vs. Adidas”.

Dear Sir,
We are writing to formally submit the completed project “Ratio Analysis of Nike vs
Adidas" as a requirement for FIN254: Introduction to Financial Management. It is with
great pleasure that we present this project, which represents the culmination of our
efforts and learning throughout the semester.
We would like to extend our gratitude to you for your continuous support, guidance,
and encouragement throughout the course. Your expertise and valuable feedback
have been instrumental in shaping this project and enhancing its quality.
Thank you for your time and consideration. We eagerly anticipate your feedback and
evaluation of the project. Please do not hesitate to contact us if you require any
further information or clarification.

Yours sincerely,

Syed San Niazi | ID-2221757630

Jabin Aminul Islam| ID-2221830630

Omar Al Fahad | ID-2221637630

Raisan Ahmed | ID-2131278630

 2

Executive Summary

This report delivers a comparative financial analysis of Nike and Adidas, highlighting key
performance metrics. Nike consistently exhibits stronger liquidity with higher current and
quick ratios, and demonstrates superior efficiency in asset management and profitability,
with elevated margins and returns on assets and equity. Market valuation metrics,
including P/E and M/B ratios, further underscore Nike's robust investor confidence.
Conversely, Adidas shows a need for strategic improvements in profitability and
operational efficiency. Recommendations suggest Adidas should focus on cost reduction
and process optimization, while Nike should continue leveraging its strengths in
innovation and financial strategy to maintain its competitiveness.
 3

INTRODUCTION
Nike and Adidas are two of the largest and most well-known athletic apparel and
footwear companies in the world. Both companies have a strong global presence and
compete in the same market, making them ideal candidates for a comparative financial
analysis. In this report, we will conduct a ratio analysis of Nike and Adidas to evaluate
their financial performance and assess their strengths and weaknesses. By analyzing key
financial ratios such as profitability, liquidity, solvency, and efficiency, we aim to provide
insights into the financial health and performance of these two industry giants.
 4
LIQUIDITY RATIO

Current Ratio

Current Ratio = Current Assets/Current Liabilities

NIKE
Year Current Asset Current Liability Ratio
2021 26,291,000 9,674,000 2.72
2022 28,213,000 10,730,000 2.63
2023 25,202,000 9,256,000 2.72

ADIDAS
Year Current Asset Current Liability Ratio
2021 13,944,000 8,965,000 1.56
2022 11,732,000 9,257,000 1.27
2023 9,809,000 8,043,000 1.22

Quick Ratio
Quick Ratio = (Current Asset - Inventory)/Current Liabilities
NIKE
Year Current Asset Inventory Current Liability Ratio
2021 26,291,000 6,854,000 9,674,000 2.01
2022 28,213,000 8,420,000 10,730,000 1.84
2023 25,202,000 8,454,000 9,256,000 1.81

ADIDAS
Year Current Asset Inventory Current Liability Ratio
2021 13,944,000 4,009,000 8,965,000 1.11
2022 11,732,000 5,973,000 9,257,000 0.62
2023 9,809,000 4,525,000 8,043,000 0.66
 5
ACTIVITY RATIO

Inventory Turnover
Inventory Turnover = Cost of Goods Sold/Inventories

NIKE
Cost of Goods Inventory Turnover
Year Inventory
Sold (Times)
2021 24,576,000 6,854,000 3.59
2022 25,231,000 8,420,000 3.00
2023 28,925,000 8,454,000 3.42

ADIDAS
Cost of Goods Inventory
Year Sold Inventory Turnover (Times)
2021 10,469,000 4,009,000 2.61
2022 11,867,000 5,973,000 1.99
2023 11,244,000 4,525,000 2.48

Average Age of Inventories (days)

Average Age of Inventories = 365/Inventory Turnover

NIKE
Average Age of
Year 365 Days Inventory Inventories
Turnover (Days)
2021 365 3.59 101.79
2022 365 3.00 121.81
2023 365 3.42 106.68

ADIDAS
Average Age of
Inventory Inventories
Year 365 Days Turnover (Days)
2021 365 2.61 139.77
2022 365 1.99 183.71
2023 365 2.48 146.89
 6
Accounts Receivable Turnover (times)
Accounts Receivable Turnover (times) = Sales/Average Accounts Receivables

NIKE (Average Accounts Receivables)

Accounts Accounts Average
Year Receivable Receivable Accounts
Previous Present Receivable
2021 2,749,000 4,463,000 3,606,000
2022 4,463,000 4,667,000 4,565,000
2023 4,667,000 4,131,000 4,399,000

Accounts
Average Accounts
Year Sales Receivable
Receivable Turnover (Times)
2021 44,538,000 3,606,000 12.35
2022 46,710,000 4,565,000 10.23
2023 51,217,000 4,399,000 11.64

ADIDAS (Average Accounts Receivable)

Account Receivable Account Receivable Average Accounts
Year Previous Present Receivable

2021 1,952,000 2,175,000 2,063,500

2022 2,175,000 2,529,000 2,352,000
2023 2,529,000 1,906,000 2,217,500

Accounts Average Accounts

Year Sales Receivable Receivable
2021 21,234,000 2,063,500 10.29
2022 22,511,000 2,352,000 9.57
2023 21,427,000 2,217,500 9.66
 7

Accounts Receivable Turnover (days)

Accounts Receivables Turnover (days) = 365/Accounts Receivables Turnover

NIKE
Accounts Accounts
Year 365 Days Receivable Receivable
Turnover Turnover (Days)
2021 365 9.98 36.58
2022 365 10.01 36.47
2023 365 12.40 29.44

ADIDAS
Account Average Age of
Receivable Inventories
Year 365 Days Turnover (Days)
2021 365 10.29 35.47
2022 365 9.57 38.14
2023 365 9.66 37.77

Accounts Payable Turnover (times)

Accounts Payable Turnover (times) = COGS/Average Accounts Payable

NIKE (Average Accounts Payable)

Accounts Payable Accounts Payable Average Accounts
Year Previous Present Payable

2021 8,284,000 9,674,000 8,979,000

2022 9,674,000 10,730,000 10,202,000
2023 10,730,000 9,256,000 9,993,000

Accounts
Cost of Goods Accounts Payable Turnover
Year Sold Payable (Times)
2021 24,576,000 8,979,000 2.74
2022 25,231,000 10,202,000 2.47
2023 28,925,000 9,993,000 2.89
 8

ADIDAS (Average Accounts Payable)

Accounts Average
Payable Accounts Accounts
Year Previous Payable Present Payable
2021 2,390,000 2,294,000 2,342,000
2022 2,294,000 2,908,000 2,601,000
2023 2,908,000 2,276,000 2,592,000

Accounts Accounts Payable

Year COGS Payable Turnover (times)
2021 10,469,000 2,342,000 4.47
2022 11,867,000 2,601,000 4.56
2023 11,244,000 2,592,000 4.34

Accounts Payable Turnover (days)

Accounts Payable Turnover (days) = 365/Accounts Payable Turnover (days)

NIKE
Accounts Payable Accounts Payable
Year 365 Days Turnover Turnover (Days)
2021 365 2.74 133.36
2022 365 2.47 147.59
2023 365 2.89 126.10

ADIDAS
Accounts Payable Accounts Payable
Year 365 Days Turnover Turnover (Days)
2021 365 4.47 81.65
2022 365 4.56 80.00
2023 365 4.34 84.14
 9

Total Asset Turnover (times)

Total Asset Turnover (times) = Sales/Average Total Assets

NIKE (Average Total Assets)

Year Total Asset Previous Total Asset Present Avg Total Asset
2021 31,342,000 37,740,000 34,541,000.00
2022 37,740,000 40,321,000 39,030,500.00
2023 40,321,000 37,531,000 38,926,000.00

Total Asset Turnover

Year Sales Avg. Total Asset
(Times)
2021 44,538,000 34,541,000.00 1.29
2022 46,710,000 39,030,500.00 1.20
2023 51,217,000 38,926,000.00 1.32

ADIDAS (Average Total Assets)

Year Total Asset Previous Total Asset Present Avg Total Asset
2021 21,053,000 22,137,000 21,595,000.00
2022 22,137,000 20,296,000 21,216,500.00
2023 20,296,000 18,020,000 19,158,000.00

Total Asset Turnover

Year Sales Avg Total Asset (Times)
2021 21,234,000 21,595,000.00 0.98
2022 22,511,000 21,216,500.00 1.06
2023 21,427,000 19,158,000.00 1.12
 10

Debt Ratio
Debt Ratio = Total Debt/Total Asset

NIKE
Year Total Debt Total Asset Debt Ratio
2021 12,813,000 37,740,000 0.34
2022 12,627,000 40,321,000 0.31
2023 12,144,000 37,531,000 0.32

ADIDAS
Year Total Debt Total Asset Debt Ratio
2021 5,331,000 22,137,000 0.24
2022 6,459,000 20,296,000 0.32
2023 5,563,000 18,020,000 0.31

Times Interest Earned

Times Interest Earned = Operating Profit or EBIT/Total Interest

NIKE
Operating Time Interest
Year
Profit/EBIT Interest Earned
2021 6,937,000 262,000.00 26.48
2022 6,675,000 205,000.00 32.56
2023 5,915,000 6,000.00 985.83

ADIDAS
Operating Times Interest
Year Profit/EBIT Interest Earned
2021 3,066,000 1,110,000 2.76
2022 1,874,000 1,380,000 1.36
2023 1,358,000 1,620,000 0.84
 11

PROFITABILITY RATIOS

Gross Profit Margin

Gross Profit Margin = (Gross Profit/Sales)*100

NIKE
Year Gross Profit Sales Gross Profit Margin
2021 19,962,000 44,538,000 44.82%
2022 21,479,000 46,710,000 45.98%
2023 22,292,000 51,217,000 43.52%

ADIDAS
Year Gross Profit Sales Gross Profit Margin
2021 10,765,000 21,234,000 50.70%
2022 10,644,000 22,511,000 47.28%
2023 10,183,000 21,427,000 47.52%

Operating Profit Margin

Operating Profit Margin = (Operating Profit/Sales)*100

NIKE
Operating Profit
Year Sales
Operating Profit Margin
2021 6,937,000 44,538,000 15.58%
2022 6,675,000 46,710,000 14.29%
2023 5,915,000 51,217,000 11.55%

ADIDAS
Year Operating Profit Sales Percentage
2021 1,989,000 21,234,000 9.37%
2022 729,000 22,511,000 3.24%
2023 279,000 21,427,000 1.30%
 12

Net Profit Margin

Net Profit Margin = (Net Income/Sales)*100

NIKE
Year Net Income Sales Net Profit Margin
2021 5,727,000 44,538,000 12.86%
2022 6,046,000 46,710,000 12.94%
2023 5,070,000 51,217,000 9.90%

ADIDAS
Year Net Income Sales Net Profit Margin
2021 2,116,000 21,234,000 9.97%
2022 612,000 22,511,000 2.72%
2023 -75,000 21,427,000 -0.35%

Earnings Per Share

Earnings Per Share = Net Income/Number of Shares

NIKE
Year Net Income Number of Shares EPS
2021 5,727,000 1,578,000 3.63
2022 6,046,000 1,571,000 3.85
2023 5,070,000 1,532,000 3.31

ADIDAS
Year Net Income Number of Shares EPS
2021 2,116,000 192,100 11.02
2022 612,000 180,000 3.40
2023 -75,000 180,000 -0.42
 13

Return on Assets (ROA)

Return on Asset (ROA) = (Net Income/Average Assets)*100

NIKE
Year Net Income Average Asset ROA
2021 5,727,000 37,740,000 15.17%
2022 6,046,000 40,321,000 14.99%
2023 5,070,000 37,531,000 13.51%

ADIDAS
Year Net Income Average Assets ROA
2021 2,116,000 21,595,000 9.80%
2022 612,000 21,216,500 2.88%
2023 -75,000 19,158,000 -0.39%

Return on Equity (ROE)

Return on Equity (ROE) = (Net Income/Average Equity)*100

NIKE
Year Net Income Average Equity ROE
2021 5,727,000 12,767,000 44.86%
2022 6,046,000 15,281,000 39.57%
2023 5,070,000 14,004,000 36.20%

ADIDAS
Year Net Income Average Equity Percentage
2021 2,116,000 7,264,000 29.13%
2022 612,000 6,594,000 9.28%
2023 -75,000 5,138,000 -1.46%
 14

MARKET RATIO

Price/Earnings (P/E) Ratio

Price/Earnings (P/E) Ratio = Market Price Per Share/Earnings Per Share

NIKE
Market Price Per
Year
Share Earnings Per Share P/E Ratio
2021 137.85 3.63 37.98
2022 117.5 3.85 30.53
2023 105.7 3.31 31.94

ADIDAS
Year Price Per Share Earnings Per Share P/E Ratio
2021 146.6 11.02 13.30
2022 65.85 3.4 19.37
2023 104.61 -0.42 -249.07

Market to Book (M/B) Ratio

Market to Book (M/B) Ratio = Market Price Per Share/ Book Value

NIKE
Market Price Per Book Value Per
Year
Share Share M/B Ratio
2021 137.85 8.09 17.04
2022 117.5 9.73 12.08
2023 105.7 9.14 11.56

ADIDAS
Year Price Per Share Book Value M/B Ratio
2021 146.6 39.14 3.75
2022 65.85 27.73 2.37
2023 104.61 25.44 4.11
 15

INTERPRETATION & RECOMMENDATION

Liquidity Ratio
It measures the firm's ability to meet its short-term obligations as they come due.
1. Current Ratio:
Current ratio measures a firm’s ability to pay short term liabilities with
its current assets.

Fig-1
The following figure shows the current ratio of Nike and Adidas for three years.

In 2021, the current ratio of Nike is 2.72:1, which says that the company has $2.72 of
current assets to pay for each $1 of current liability. Similarly, the current ratio of Adidas
is 1.56:1 which means they have $1.56 of current assets to pay for each $1 of current
liability.
The trend for this ratio is higher the better, and we can see over the years Nike the current
ratio has decreased in 2022 and increased in 2023. whereas the current ratio of Adidas
was 1.56:1 in 2021 which gradually decreased to 1.27 in 2022 and 1.22 in 2023.

Recommendation, The ratio indicates that Nike liquid asset value is better than Adidas
as their ratio falled gradually over the three years, which is a concerning sign for them to
pay its short term liabilities.
 16

2. Quick/Acid Test Ratio: Quick ratio measures the firm’s ability to pay each
dollar of current liability with its current assets excluding the inventory.

Fig-2

The following figure shows the quick ratio of Nike and Adidas for three years

In 2021, the quick ratio of Nike is 2.01:1, which says that the company has $2.01 of
liquid assets to pay for each $1 of current liabilities. Similarly, the quick ratio of Adidas
is 1.11:1 which means they have $1.11 of current assets to pay for each $1 of current
liabilities.
The trend for this ratio is higher the better, hence we can see over the years the quick
ratio of Nike has decreased in 2022 and 2023 by a smaller margin. whereas the quick
ratio of Adidas was 1.11:1 in 2021 which gradually decreased to 0.62:1 in 2022 and
increased a little to 0.66:1 in 2023.

Recommendation, The ratio indicates that Adidas need to increase their quick ratio by
increasing their current assets through long term source of capital or reduce the inventory
in order to perform better in the future. Because Adidas has less liquid assets to pay its
current liabilities compared to Nike.
 17

Activity Ratio
3. Inventory Turnover: It is the frequency at which inventories are converted to sales.

Fig-3
The following figure shows the Inventory turnover (Times) of Nike and Adidas for
three years

4. Average Age of Inventory: It measures how many days a firm holds inventory in
hand in an accounting period.
 18

Fig-4
The following figure shows the average age of inventories (Days) of Nike and Adidas
for three years

In 2016 the inventory turnover of Nike was 3.59 times and 102 days which implies
that Nike on an average sold and restocked their inventories 3.59 times and sold it after
102 days from purchase. Similarly, the inventory turnover of Adidas is 2.61 times and
140 days which means that the firm on an average sold and restocked the inventories 2.61
times and 140 days in an accounting period.
The trend of the ratio the higher the ratio, the better and we can see initially the inventory
turnover was higher for Nike but it declined in 2022 and again increased in 2023. On the
other hand, Nike's average age of inventories was lower and then increased a bit and then
again declined in 2023. Adidas is currently performing better than nike in average age of
inventories (Days) compared to the inventory turnover times throughout the 3 years.

Recommendations, Nike should focus on improving its inventory turnover to ensure

efficient utilization of resources and reduce holding costs, while Adidas should maintain
its effective inventory management strategies to sustain its advantage in average age of
inventories.
 19

5. Average Collection Period: This ratio measures the number of days taken to collect
cash from customers.

Fig-5

The following figure shows the Average Collection Period (Days) of Nike and
Adidas for three years

In 2021, the average collection period for Nike was 36.58 days which implies that the
 20
firm has taken on an average 36.58 days to collect cash from customers. On the contrary,
in 2021, the average collection period for Adidas is 35.47 days which implies that the
firm has taken on an average 35.47 days to collect cash from customers. Over the years
Nike average collection period declined which is a good sign but Adidas average
collection period raised.
The trend for this ratio is lower the better however there is a fear of losing customers.
Hence, the trend depends on the competitors’ policy. We can say Nike is performing
better in terms of cash collection compared to Adidas as they are not giving much effort
to collect back cash from their customers. Therefore, Adidas is taking more time to
collect money than Nike.
Recommendations: The ratio indicates that lower the collection period it is better for
Nike and Adidas. They should maintain efficient cash collection processes to ensure
healthy financial operations while balancing customer satisfaction. Monitoring trends and
adjusting collection strategies accordingly is crucial for sustained competitiveness.
6. Average Collection Period: This ratio measures the time period taken by a company
to pay off their dues against the purchases made on a credit basis from the supplier.

Fig-6

The following figure shows the Average Payment Period (Days) of Nike and Adidas
for three years

The Average Payment Period is a measure of the time it takes a company to pay its
suppliers after receiving goods or services on credit. A lower number indicates a shorter
 21
payment period, which means the company pays its suppliers faster. Based on the graph,
Adidas has a shorter average payment period than Nike across all three years. In 2021,
Adidas’s average payment period was 81.65 days, whereas Nike’s was 133.36 days. This
trend continues through 2022 and 2023. There are a few reasons why a company might
have a longer average payment period. One reason is that the company may have strong
negotiating power with its suppliers and be able to negotiate longer payment terms.
Another reason is that the company may be experiencing cash flow problems and may be
delaying payments to suppliers in order to conserve cash.

Recommendations

● Negotiate shorter payment terms with suppliers.

● Improve their cash flow by increasing sales or reducing costs.
● Take advantage of early payment discounts offered by suppliers.

7. Total Asset Turnover: It measures how efficiently firms use their assets to generate
sales.

Fig-7

The following figure shows the Total Asset Turnover of Nike and Adidas for three
years
Nike demonstrates a consistently stronger ability to generate sales from its assets than
Adidas over the three years. The graph reveals Nike's consistently stronger asset
 22
utilization compared to Adidas across 2021 (1.29 vs. 0.98), 2022 (1.20 for Nike vs. 1.06
for Adidas), and 2023 (1.32 for Nike vs. 1.12 for Adidas). This indicates Nike generates
more sales per dollar of assets. To improve, both companies could focus on strategies like
selling more inventory without increasing assets, reducing inventory levels, or collecting
receivables faster. These actions can enhance efficiency and generate more sales from
existing assets.
A higher total asset turnover ratio signifies a company's efficiency in utilizing its assets to
generate revenue. In this case, Nike is extracting more sales per dollar of assets compared
to Adidas.
Recommendation: To improve the asset turnover ratio, Adidas could consider strategies
like:
● Reducing inventory levels: Freeing up assets allows for investment in other areas.
● Collecting receivables faster: Improved cash flow facilitates investment in new
assets.

8. Debt Ratios: Debt ratio measures the ability of a firm to meet its long term debt with

assets.

Fig-8
The following figure shows the debt ratio of Nike and Adidas for three years

From the graph, we can see the Debt Ratios of Nike and Adidas from 2021 to 2023. In
2021, Nike's debt ratio was 0.34, while Adidas's was 0.24, indicating that Nike had a
higher proportion of debt relative to its assets compared to Adidas. In 2022, Nike's debt
 23
ratio decreased to 0.31, whereas Adidas's debt ratio increased to 0.32, making Adidas's
debt slightly higher than Nike's. By 2023, Nike's debt ratio slightly increased to 0.32, and
Adidas's debt ratio slightly decreased to 0.31, again reversing their relative positions from
the previous year.

Overall, both companies maintained relatively stable debt ratios over the three years, with
Nike showing a slight downward trend and Adidas an upward trend followed by a slight
decrease.

Recommendation: To improve, Nike should continue focusing on reducing its debt ratio
to lower levels, perhaps targeting operational efficiencies or improving revenue streams
to reduce reliance on debt. Adidas, on the other hand, should aim to maintain its lower
debt ratio by carefully managing its debt levels and possibly looking for opportunities to
strengthen its asset base without increasing debt proportionately. Both companies could
benefit from strategies that enhance their asset management and revenue growth to
improve their financial leverage

9. Times Interest Earned: This ratio measures the ability of the firm to meet its interest
payments as they come due.

Fig-9
The following figure shows the times interest earned ratio of Nike and Adidas for
three years

This graph shows the Times Interest Earned ratio for Nike and Adidas from 2021 to
 24
2023. In 2021, Nike's times interest earned ratio was 2.65, slightly lower than Adidas's
ratio of 2.76. In 2022, Nike's ratio significantly increased to 3.26, while Adidas's ratio
declined to 1.36, indicating Nike's improved ability to cover interest payments compared
to Adidas. However, in 2023, both companies experienced a sharp decline in this ratio,
with Nike's ratio dropping to 0.99 and Adidas's ratio to 0.84, suggesting that both
companies faced challenges in covering their interest payments.

Recommendation: To improve their Times Interest Earned ratios, Nike should focus on
enhancing its profitability through cost management and revenue growth strategies to
ensure it can cover its interest obligations comfortably. Adidas, on the other hand, should
aim to increase its earnings before interest and taxes (EBIT) and manage its interest
expenses more effectively. Both companies could also consider refinancing their debt to
secure lower interest rates, thus reducing their interest burden and improving their ability
to meet interest payments.

Profitability Ratio
10. Gross Profit Margin: It measures the percentage of each tk of sales remaining after
the firm has paid for its goods.

Fig-10
The following figure shows the ratio gross profit margin of Nike and Adidas for
 25
three years

The provided figure illustrates the Gross Profit Margins (GPM) of Nike and Adidas from
2021 to 2023. In 2021, Nike's GPM was 44.82%, while Adidas's was higher at 50.70%.
In 2022, Nike's GPM improved to 45.98%, but it remained below Adidas's GPM of
47.28%. In 2023, Nike's GPM slightly declined to 43.52%, whereas Adidas's GPM
slightly increased to 47.52%. Over the three years, Adidas consistently maintained a
higher Gross Profit Margin compared to Nike, indicating a stronger ability to retain a
higher percentage of sales as profit after accounting for the cost of goods sold.

To enhance its Gross Profit Margin, Nike should prioritize cost management strategies,
such as optimizing supply chain efficiency and reducing production expenses.
Additionally, Nike could consider increasing its product prices or enhancing its product
mix to include higher-margin items. Adidas, while already having a higher GPM, should
continue to innovate and invest in premium products to maintain and possibly further
increase its margins. Both companies should also explore opportunities for operational
efficiencies and strategic pricing to bolster their profitability.

11. Operating Profit Margin: It measures the percentage of each tk of sales remaining
after all cost and expenses other than interest, tax and preferred stock dividend are
deducted.

Fig-11
The following figure shows the ratio operating profit margin of Nike and Adidas
 26
for three years
The graph illustrates the Operating Profit Margin (OPM) of Nike and Adidas over three
years from 2021 to 2023. In 2021, Nike's OPM was 15.58%, significantly higher than
Adidas's OPM of 9.37%. This indicates that Nike retained a higher percentage of sales as
operating profit compared to Adidas. The following year, 2022, saw a decrease in OPM
for both companies. Nike's OPM fell to 14.29%, while Adidas's OPM dropped more
sharply to 3.24%. Despite the decline, Nike continued to outperform Adidas regarding
operating efficiency.
In 2023, the trend continued with both companies experiencing further decreases in their
OPM. Nike's OPM decreased to 11.55%, whereas Adidas's OPM saw a dramatic drop to
1.30%. This substantial decline suggests that Adidas struggled significantly with
managing its operating costs relative to its sales.
Recommendation: To improve its Operating Profit Margin, Adidas should focus on cost
management strategies and operational efficiencies. This might involve streamlining its
supply chain, reducing manufacturing costs, and optimizing marketing expenses.
Additionally, investing in innovation and product differentiation could help Adidas
increase its sales volume and pricing power, thereby improving its operating margins.

12. Net Profit Margin: This ratio measures the percentage of revenue left after all the
expenses have been deducted from sales.

Fig-12
The following figure shows the ratio net profit margin of Nike and Adidas for three
 27
years
The graph illustrates the Net Profit Margin of Nike and Adidas from 2021 to 2023. Net
Profit Margin measures the percentage of revenue remaining after all expenses have been
deducted from sales, providing insight into a company's overall profitability.
In 2021, Nike's NPM was 12.86%, indicating strong profitability, while Adidas reported a
slightly lower NPM of 9.97%. In 2022, Nike's NPM slightly increased to 12.94%,
demonstrating consistent profitability. In contrast, Adidas's NPM significantly dropped to
2.72%, reflecting a sharp decline in profitability. The year 2023 saw further divergence
between the two companies. Nike's NPM decreased to 9.90%, which, although lower
than previous years, still indicated solid profitability. Adidas, however, experienced a
negative NPM of -0.35%, signifying a loss for the year. This dramatic shift highlights
significant challenges Adidas faced in maintaining profitability.

Recommendation Adidas should be focusing on cost reduction and revenue

enhancement strategies. This could involve reevaluating its product pricing, reducing
operational inefficiencies, and exploring new markets or segments to boost sales.
Strengthening its brand through effective marketing and innovative products could also
help improve its margins. Additionally, Adidas should conduct a thorough analysis to
identify and mitigate any underlying issues affecting its profitability.

13. Earnings Per Share: This ratio measures the net income earned on each share of
common stock.

Fig-13
The following figure shows the ratio of earnings per share of Nike and Adidas for
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three years
The graph shows us the Earnings Per Share (EPS) of Nike and Adidas from 2021 to
2023. EPS measures the net income earned on each share of common stock, reflecting a
company's profitability, and is a key indicator for investors.
In 2021, Nike's EPS was significantly higher at 11.02 compared to Adidas's EPS of 3.63.
This indicates that Nike was able to generate much higher earnings per share than
Adidas. In 2022, Nike's EPS decreased to 3.85, while Adidas's EPS also declined to 3.40,
showing a narrower gap between the two companies. By 2023, Nike's EPS further
decreased to 3.31, while Adidas's EPS turned negative, at -0.42, indicating a net loss per
share.
Recommendations: To improve its EPS, Adidas should focus on strategies to increase
net income and manage costs effectively. This can include diversifying product offerings,
entering new markets, and improving operational efficiencies. Enhancing marketing
efforts to strengthen brand presence and customer loyalty can also drive sales growth.
Additionally, Adidas might consider share buyback programs to reduce the number of
shares outstanding, which can boost EPS if net income improves.
For Nike, maintaining and enhancing its EPS requires sustained innovation and efficient
cost management. Nike should continue investing in research and development to create
appealing new products and technologies. Additionally, expanding into emerging markets
and optimizing its supply chain can help maintain strong earnings. Strategic acquisitions
and partnerships could also contribute to increasing profitability and shareholder value.

14. Return on Assets: This ratio measures the overall effectiveness of management in
generating profits with its available assets.
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Fig-14
The following figure shows the ratio of return on assets of Nike and Adidas for three
years
The graph above, gives us an idea about the Return on Assets (ROA) ratio for Nike and
Adidas from 2021 to 2023. In 2021, Nike had an ROA of 15.17%, which was
significantly higher than Adidas's ROA of 9.80%. This indicates that Nike was more
efficient in using its assets to generate profits compared to Adidas. In 2022, Nike's ROA
slightly decreased to 14.99%, while Adidas's ROA saw a significant drop to 2.88%,
highlighting a substantial decrease in Adidas's asset utilization efficiency.
By 2023, Nike's ROA further decreased to 13.51%, but it remained positive and
relatively strong. In contrast, Adidas's ROA turned negative at -0.39%, indicating that
Adidas incurred a loss relative to its asset base, which signifies significant operational
challenges.
Recommendation: To improve its Return on Assets Ratio, Adidas should focus on
optimizing asset utilization and enhancing profitability. This could involve disposing of
or better utilizing underperforming assets, investing in more productive assets, and
improving operational efficiency. Adidas should also focus on boosting sales through
effective marketing, expanding into new markets, and launching innovative products to
leverage its asset base better

15. Return on Equity: Return on equity measures the return earned on the common
stockholder’s investment in the firm.
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Fig-15
The following figure shows the ratio of return on equity of Nike and Adidas for
three years
The graph illustrates the Return on Equity (ROE) ratio for Nike and Adidas over three
years from 2021 to 2023. ROE measures the return earned on common stockholders'
investment in the firm, indicating the efficiency of a company in generating profits from
shareholders' equity.
In 2021, Nike reported a high ROE of 44.86%, significantly outperforming Adidas,
which had an ROE of 29.13%. This indicates that Nike was more effective in generating
returns on equity than Adidas. In 2022, both companies saw a decrease in their ROE.
Nike's ROE dropped to 39.57%, while Adidas's ROE sharply declined to 9.28%, further
widening the performance gap between the two companies. By 2023, Nike's ROE
decreased again to 36.20%, remaining robust despite the decline. Conversely, Adidas's
ROE turned negative, reaching -1.46%, signifying that Adidas incurred losses relative to
its equity, highlighting substantial financial and operational challenges.
Recommendation: To improve its Return on Equity Ratio, Adidas should focus on
enhancing profitability and optimizing its equity base. Strategies could include increasing
revenue through market expansion, improving cost management, and boosting
operational efficiency. Reducing debt levels, which can improve net income by lowering
interest expenses, may also positively impact ROE. Furthermore, Adidas should consider
strategic investments and innovations to drive growth and profitability.

16. Price Earnings Ratio: It measures the amount that investors are willing to pay for
 31
each dollar of a firm's earnings.

Fig-16
The following figure shows the price earnings ratio of Nike and Adidas for three
years

The figure displays the Price Earnings (P/E) Ratios of Nike and Adidas from 2021 to
2023. In 2021, Nike's P/E ratio was 37.98, significantly higher than Adidas's P/E ratio of
13.30, indicating that investors were willing to pay more for each dollar of Nike's
earnings compared to Adidas. In 2022, both companies saw a decrease in their P/E ratios,
with Nike at 30.53 and Adidas at 19.37, but Nike still maintained a higher P/E ratio.

In 2023, Nike's P/E ratio slightly increased to 31.94, while Adidas experienced a drastic
negative shift, with a P/E ratio of -249.07, suggesting a huge loss or negative earnings,
leading to a severely reduced investor valuation.

Recommendations: Adidas needs to address its earnings issues urgently. This could
involve cost-cutting measures, improving operational efficiency, and potentially
restructuring to restore profitability. Additionally, Adidas should communicate a clear
turnaround strategy to investors to rebuild trust and improve its market valuation. Both
companies should also consider investor relations strategies to better inform and engage
with their shareholders about their financial health and future prospects.

17. Market to Book (M/B) Ratio: It is an assessment of how investors view the firm’s
performance.
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Fig-17
The following figure shows the market book ratio of Nike and Adidas for three
years
In 2021, Nike had a significantly higher M/B ratio of 17.04 compared to Adidas's 3.75,
indicating that investors valued Nike's equity substantially higher relative to its book
value than Adidas's. In 2022, Nike's M/B ratio decreased to 12.08, while Adidas's ratio
declined to 2.37, but Nike continued to have a much higher valuation. In 2023, both
companies experienced a slight increase in their M/B ratios, with Nike at 11.56 and
Adidas at 4.11. Despite this increase, Nike's M/B ratio remained considerably higher,
reflecting stronger investor confidence in Nike's market performance relative to Adidas.
Recommendations: Nike should focus on sustaining its market performance by
continuing to innovate, maintaining strong brand value, and effectively managing its
financials to ensure consistent growth and profitability. Adidas, on the other hand, needs
to work on enhancing its market perception by improving operational efficiency,
increasing profitability, and strengthening its brand positioning. Furthermore, Adidas
should focus on strategic initiatives that can boost investor confidence, such as entering
new markets, and improving overall financial health to attract higher valuations from
investors.
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Conclusion

The ratio analysis conducted on Nike and Adidas reveals distinct financial profiles. Nike
demonstrates superior liquidity with consistently higher current and quick ratios,
indicating a stronger ability to meet short-term obligations. While Nike boasts better
inventory turnover, Adidas maintains an advantage in the average age of inventories,
suggesting efficient inventory management. In terms of profitability, Nike outshines
Adidas with higher margins across gross, operating, and net profit ratios. Moreover, Nike
displays superior returns on assets and equity, indicating more efficient asset utilization
and shareholder value creation. Nike commands higher market valuation ratios, such as
price-to-earnings and market-to-book ratios, reflecting investor confidence in its future
earnings growth potential compared to Adidas. Overall, while both companies are
industry giants, Nike emerges as the stronger performer across various financial metrics,
showcasing better financial health and market positioning.
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References

1. https://finance.yahoo.com/quote/NKE/financials/
2. https://finance.yahoo.com/quote/NKE/balance-sheet/
3. https://finance.yahoo.com/quote/NKE/history/
4. https://finance.yahoo.com/quote/ADDYY/financials/
5. https://finance.yahoo.com/quote/ADDYY/balance-sheet/
6. https://finance.yahoo.com/quote/ADDYY/history/