Financial Analysis of PUMA and Nike, Inc.

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The Companies and Corporate Governance

PUMA is a company founded in 1924, based in Germany, which manufactures shoes and sportswear. It is managed by the administrative board of the company and business is managed by the managing directors of the company. PUMA follows the accounting standards of the International Financial Reporting Standards “IFRS”. As a European company, the monetary unit used in financial reports is the Euro (€). The operational goal for PUMA is to become “The Most Desirable Sport lifestyle Company”. The end of the fiscal year was December 31, and is reflected in the most recent financial statements.

Nike, Inc. is an American company, founded in 1964, that manufactures athletic footwear, apparel and sports equipment. It is managed by the company’s Nominating and Corporate Governance Committee of NIKE, Inc., which follows the accounting standards of the International Financial Reporting Standards “IFRS”. As an American company, the monetary unit reported is the U.S. dollar ($). Through the oversight of corporate governance, the operational goal for Nike is “to bring inspiration and innovation to every athlete in the world”. The end of the fiscal year is May 31, and is reflected in the most recent financial statements.

Strategic Accounting Issues

PUMA’s top three operational goals are: the expansion of product categories, regional expansion, and expansion with non-PUMA brands. By expanding the product categories, PUMA will need to spend more money in order to manufacture the increase in the number of products to sell. If the expanded categories are not marketable, the profitability of the company will decrease. Also, in order to gain regional expansion, the marketability of the company needs to be increased by means of commercialization or other methods. Again, the company will need increase sales or else the profitability will decrease. Lastly, the idea of expansion with non-PUMA brands requires that these other brands be profitable as well in order to increase the value of the company with minimal decrease in the net profit margin.

Nike, Inc.’s top three operational goals are: to serve the athlete, to grow the company and to inspire the world. The first of these goals suggest that the company would like to increase the number of products that are available to the consumer, a similar goal to that of PUMA. For the second goal, Nike states that the growth it is looking for needs to be sustainable, profitable, capitally efficient, and brand enhancing. A long stride away from their sweatshop controversy days, the third goal of Nike’s is to increase the use of natural resources and sustainable resources, while maintaining the growth and profitability that it is seeking. Without maintaining growth and profitability, the company would likely lose the interest of current consumers and subsequently do poorly in the market.

The Financial Statements

Both companies provide financial statements with the same components including: income statements, balance sheets, and cash flow statements of current and previous years. These financial statements are similar; however, Nike breaks down the data into categories of its brands, branches and sports category.

A key difference in the reporting of the two companies’ financial statements is the use of terms which are used to refer to specific financial values. For example, on the balance sheets, Nike reports a long-term debt value while PUMA does not. Another difference between the two styles of reporting is the use of reference percentages. Nike uses percentages to show the differences in each value from the previous year, whereas PUMA uses percentages to show both the change in values from the previous year and the percentage of the total that is reported. A third key difference in reporting is in the ease of analysis of the two financial statements. For example, Nike explicitly states the gross margin in the table for consolidated financial statements as well as in the written summary of the statement, whereas PUMA only states the gross margin in the written summary. Although the consolidated data tables for the financial statements of the two companies differ, the scope and content written in the notes to the financial statements are similar, save for difference in company specifics. Also, PUMA inserts charts to show historical change of data, in the notes. The overall presentation of the financial statements of the two companies is fairly similar with few minor formatting differences.

The main profitability ratios include the gross profit margin, the operation profit margin, the pretax profit margin, and the net profit margin. In order to calculate these ratios, values for gross profit, operation profit, pre-tax profit, net income and net sales (revenue) are necessary (Loth). The calculations to find each of the profitability ratios are in the following table.

(Table omitted for preview. Available via download)

In 2013, for Puma, the value for gross profit was €1,387.5million, the value for operation profit was €62.5 million, the value for pre-tax profit was €53.7million, the value for net income was €5.3million, and the value for net sales was €2,985 (“Financial Reports”). Using these values, the gross profit margin was found to be 46.5%, the operation profit margin was found to be 2.1%, the pre-tax profit margin was found to be 1.8%, and the net profit margin was 0.2%.

In 2013, for Nike, the value for gross profit was $11,034million, the value for operation profit was $3,254million, the value for pre-tax profit was $3,272 million, the value for net income was $2,485 million, and the value for net sales was $25,313million (“Annual Reports”). Using these values, the gross profit margin was found to be 43.6%, the operation profit margin was found to be 12.9%, the pre-tax profit margin was found to be 12.9%, and the net profit margin was 9.8%. These values show that PUMA has a higher gross profit margin; however, Nike has higher operation profit margin, pretax profit margin, and net margin as well as more total volume. This means that overall, although PUMA has a higher gross profit margin, Nike as a whole is more profitable than PUMA.

The main liquidity ratios used for financial analysis are the current ratio, and the quick ratio. In order to calculate these ratios, the values for current assets, current liabilities, and inventories needs to be found from the cash flow statements (2013). The values for liquidity will be an indicator as to how much movement stocks for these companies will experience.

In 2013, for Puma, the value for current assets was €1514.2million, the value for inventories was €521.3million, and the value for current liabilities was €690.8million. Using these values, the current ratio was found to be approximately 2.2 and the quick ratio was 1.4. For Nike, the value for current assets was $13,626million, the value for inventories was $3,434million, and the value for current liabilities was $3,926. Using these values, the current ratio was found to be approximately 3.5 and the quick ratio was 2.6. This suggests that Nike has a higher degree of liquidity, meaning that Nike has a higher level of trading activity; thus, investing in Nike has a lower risk.

To further the financial analysis of the two companies, a trend analysis for revenue, net income, and earnings per share shows a positive trend for revenue and a negative trend for both the net income and earnings per share for PUMA. For Nike, both revenue and net income have a positive trend, however the earnings per share shows a slightly negative trend. For PUMA, as the cost of goods sold increases, the revenue also increases. Also, as revenue and cost of goods sold increases, the operating expenses of the company also increases. Although all of these factors are increasing, the net income shows a negative correlation with these other categories. At Nike, as the cost of goods sold increases the revenue also increases. While the revenue and cost of goods sold increases, the operating expenses decreases, which leads the net income to increase.

Although Nike, Inc. and PUMA are in the same market, and can be considered to be competitors, the two companies share a lot in common: from their operational goals to the fact that both companies have stable levels of liquidity. Along with these similarities, there are many others that exist between the two companies even though they exist in different countries. By analyzing both of the companies, contrasting ideas and methods were able to be found. Some of these methods include presentation and organization of financial statements, consistency of notes to the financial statements, terminology, and ease of analysis. Although both similar and contrasting ideas can be found between the two companies, due to the fact that they share a common standard for accounting reporting as well as a common market, these companies are not all that different. 

References

Annual Reports. (n.d.). NIKE, Inc.. Retrieved from http://investors.nikeinc.com/Investors/Financial-Reports-and-Filings/Annual-Reports/default.aspx

Financial Analysis: Solvency Vs. Liquidity Ratios. (2013, October 3). Investopedia. Retrieved from http://www.investopedia.com/articles/investing/100313/financial-analysis-solvency-vs-liquidity-ratios.asp

Financial Reports. (n.d.). About PUMA Financial Reports Category. Retrieved from http://about.puma.com/category/investors/financial-report/

Loth, R. (n.d.). Profitability Indicator Ratios: Profit Margin Analysis. Investopedia. Retrieved from http://www.investopedia.com/university/ratios/profitability-indicator/ratio1.asp