Ratio analysis is used to evaluate relationships

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recent years (2010-2011). Ratio analysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Financial statement ratio analysis focuses on three key aspects of a business: liquidity, profitability, and solvency. Gaining an understanding of the concepts that we have studied this semester gives us the opportunity to apply ourselves in order to be able to compute each of the required financial ratios. Our financial statements will assist us in finding the solutions, using the given formulas: Profit Margin Ratio = Net income/Net sales; Asset Turnover = Net sales/Average assets; 39
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Return on Assets = Net income/Average assets; Return on Common Stockholders’ Equity =Net income-Preferred dividends/Weighted average common shares outstanding; Current Ratio = Current assets/Current liabilities; Debt to Total Asset Ratio = Total debt/Total assets Computations of Polo Ralph Lauren, Nike, and Adidas 2010-11 Ralph Lauren 2010 2011 1) Profit Margin Ratio 479.50 /4,978.90= .096306 9.6% 567.60 /5,660.30= .100277 10% 2) Asset Turnover 4,978.90 /4815= 1.0340 5,660.30 / 4815= 1.1755 3) Return on Assets 479.50 /4815= .09958 10% 567.60/4815= .11788 12% 4) Return on Common Stockholders’ Equity (479.50 –0)/ 98.20= 4.88289 488% (567.60 –0)/ 94.50= 6.00634 6% 5) Current Ratio 2,275.80/747.30= 3.04536 2,478.00/832.00= 2.97836 6) Debt to Total Asset Ratio -714.60/4,981.10= -.14346 -826.90/4,648.90= -.17787 Nike 40
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2010 2011 1) 1) Profit Margin Ratio 1907/190140= 0.10029 10% 2133/20862= 0.10224 10% 2) 2) Asset Turnover 19014/14419= 1.31867 20862/14998= 1.39098 3) 3) Return on Assets 1907/14419 = .13226 13% 2133/14998= .14222 14% 4) 4) Return on Common Stockholders’ Equity (1907-0)/(485.5)= 3.92791 392% (2133-0)/ (475.5)= 4.48580 449% 5) 5) Current Ratio 10959000/3364000= 3.25773 11297000/3958000= 2.85421 6) 6)Debt to Total Asset Ratio 146000/14419000= .01013 387000/14998000= .02580 Adidas 2010 2011 1) Profit Margin Ratio 740.7/15663.6= . 0470 4.70 800.6/17,399.2 = .0460 4.60% 2) Asset Turnover 15663.6/14275.15= 1.1 17,399.2/14275.15= 1.2 3) Return on Assets 740.7/14275.15= .0520 5.20% 800.6/14275.15= .0560 5.60% 4) Return on Common Stockholders’ Equity (740.7-0)/6367.65= .12 12% (800.6-0)/6367.65= .13 13% 5) Current Ratio 7,679.60/5,104.00= 1.5 8,264.70/5,665.60= 1.5 7) Debt to Total Asset Ratio 1,752.70 /13,867.60= .13 1,294.30/14,676.10= .09 Comparative Analysis Ralph Lauren is in a great financial position they are currently able to give quarterly dividends to their shareholders. Over the years their financial status continues to grow and not decrease this shows in the trend analysis. Their current ratios are all where they need to be compared to everything as a whole. There debt is low and equals out in their current financial obligations to their shareholders. Nike Inc.'s revenues have been increasing from 2010 to 2011 and from 2011 to 2012. Nike obviously has no issue with increasing their revenue from $20.9B USD to $24.1B USD. Most impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 32.08% to 30.80% days 41
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(Business Week, 2012). Doing this was the reason Nike continued growth from $2.1B USD to $2.2B. The balance sheet shows that Nike Inc. uses little or no debt in its capital structure and may have less financial risk than the industry aggregate. Cash collection is average with Accounts Receivable are typical for the industry, although improving, with 48.68 days worth of sales outstanding. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 81.27 days (Business Week, 2012).
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