Nike's Liquidity Ratio Summary
Liquidity Ratio – Between 2013 and 2015, Nike’s current ratio declined but their quick ratio inclined. The quick ratio, also known as the “acid test”, is a better indicator of Nike’s liquidity because it removes the amount of inventory from the ratio. Inventory is typically the least liquid of a company’s current assets and in Nike’s perspective, if sales slowdown, the inventory might not be converted to cash as quickly. Also, with the type of inventory that Nike carries, such as sports items and apparel, social and economic influences could affect their inventory liquidity when apparel goes out of style or sports team loss support. Thus, the incline of their quick ratio is a good indicator of Nike’s ability to satisfy their liabilities without
…show more content…
It is very favorable to see Nike have a debt ratio close to 0 as it shows the company is not taking on too much financial risk. Compared with the industry average, Nike is taking on slightly more risk, although the company is in a good position to do so. Nike’s quick ratio shows their ability to satisfy their liabilities at 1.7 times and with a debt ratio close to 0, they can afford to take on additional financial liabilities to develop their e-commerce sales or invest further in their emerging markets sector to compete against international brands. Comparing Nike against the industry, other companies may not be able to take such risk due to their liquidity restraints, but Nike has the potential to do so if …show more content…
Although it appears that Nike has some inventory management problems, they are clearly growing their net income year over year. From the company perspective, they are effectively leveraging their assets to yield favorable increases in profit year over year, but from the stockholder’s perspective, they are effective leveraging their equity. This shows that although competition increases in the market, Nike’s brand remains relevant and desired within its primary markets. Nike can leverage their brand recognition, liquid capital, and their room for additional risk to focus on their e-commerce platforms, emerging markets, and women’s product
It is very favorable to see Nike have a debt ratio close to 0 as it shows the company is not taking on too much financial risk. Compared with the industry average, Nike is taking on slightly more risk, although the company is in a good position to do so. Nike’s quick ratio shows their ability to satisfy their liabilities at 1.7 times and with a debt ratio close to 0, they can afford to take on additional financial liabilities to develop their e-commerce sales or invest further in their emerging markets sector to compete against international brands. Comparing Nike against the industry, other companies may not be able to take such risk due to their liquidity restraints, but Nike has the potential to do so if …show more content…
Although it appears that Nike has some inventory management problems, they are clearly growing their net income year over year. From the company perspective, they are effectively leveraging their assets to yield favorable increases in profit year over year, but from the stockholder’s perspective, they are effective leveraging their equity. This shows that although competition increases in the market, Nike’s brand remains relevant and desired within its primary markets. Nike can leverage their brand recognition, liquid capital, and their room for additional risk to focus on their e-commerce platforms, emerging markets, and women’s product