Choose a company that you wish to analyze.
no paper, just discussion post
go to finance.yahoo.com (Links to an external site.) and choose a company that you wish to analyze. You may not choose Nike since Nike is used in the lesson for this module and will be used as a sample post for this week’s discussion by your instructor. Enter the company name in the box to the left of “Get Quotes” near the top left of the page. Once you have the company overview page open, to the left you will see a list of links for further information on that firm. Near the bottom of the link column are financial statements. Open the firm’s income statement; this is the firm’s most recently reported annual income statement. You should see 3 years of data in almost all cases. If you do not, choose another firm. The dates of the income statement will vary by company since companies may or may not have a fiscal year end of December 31.
Using the income statement you found, compute your chosen firm’s gross profit margin, operating income margin, and net income margin (using the equations found in this module’s instruction) for the past 3 years. Include the numerator and denominator for each ratio. After you report the ratios, please discuss the economic interpretation of your results. You might want to read the instructor’s sample post before you begin.
Here is the sample:
The 2012 financial statements are the most recent year-end for Nike so I’ll report the ratios from 2012, 2011 and 2010. Your chosen firm may have reported their 2013 statements if they do not follow the calendar year, in which case you would report 2013, 2012 and 2011.
Note that I want you to show me the numerator and denominator on all ratios. Below are the Nike ratios. As a “check figure” you should be sure that the ROE is approximately equal to the product of the 3 ratios on the right-hand-side of the equation.
(In order of ROE = NPM*TAT*EM)
2012: 2,223/10,381 = 2,223/24,128 * 24,128/15,465 * (1+[5,084/10,381])
21.41% = 9.21% * 1.56 * 1.49
2011: 2,133/9,843 = 2,133/20,862 * 20,862/14,998 * (1+[5,155/9,843])
21.67% = 10.22% * 1.39 * 1.52
2010: 1,907/9,754 = 1907/19,014 * 19,014/14,419 * (1+[4665/9754])
19.55% = 10.03% * 1.32 * 1.48
Discussion:
Much like the profitability ratios we saw last module, Nike’s ROE (like the net profit margin) shows improvement from 2010 to 2011 but then a slight decline in 2012. You may recall that the primary reason for the decline in 2012 was due to a lower product markup by Nike.
The asset turnover over this time period improved each year. It is clear that Nike is using its assets more efficiently and those assets are generating more revenue than previous years. The equity multiplier is relatively steady during the reporting period. There was a slight increase in 2011 but then a return to lower levels of reliance on debt. Given the recessionary times that we have been through, Nike’s performance is satisfactory.
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