In 250 words please tell me whether or not you would recommend that I invest in Nike - you will need to substantiate your recommendation with your ratio findings from the first part of this assignment. A: Working Capital: Working Capital = Current Assets - Current Liabilities For 2018: $15,134 - $6,040 = $9,094 For 2017: $16,061 - $5,474 = $10,587 Interpretation: This ratio determines a company's ability to weather financial crunch. Banking institutions are interested for this ratio before granting a loan. B: Current Ratio: Current Ratio = Current Assets / Current Liabilities For 2018: $15,134 / $6,040 = 2.5 For 2017: $16,061 / $5,474 = 2.9 Interpretation: Current ratio is a measure of short term solvency which measures the entity's capability to cover up its current liabilities through its current resources. C: Quick Ratio: Quick Ratio = Quick Assets / Current Liabilities Where, Quick assets = Current assets - Inventories - Prepaid expenses For 2018: Quick assets = $15,134 - $5,261 - $1,130 = $8,743 Quick Ratio = $8,743 / $6,040 = 1.4 For 2017: Quick assets = $16,061 - $5,055 - $1,150 = $9,856 Quick Ratio = $9,856 / $5,474 = 1.8 Interpretation: It is more conservative in terms of short-term liquidity. Quick assets only include cash and cash equivalents so it can measure a company's ability to pay off its current liabilities without having to worry about assets generated from sales. D: Accounts Receivable Turnover: Accounts Receivable Turnover = Credit Sales / Average Accounts Receivable For 2018: Average accounts receivable = ($3,498 + $3,677) / 2 = $3,587.5 Accounts receivable turnover = $36,397 / $3,587.5 = 10.1 For 2017: Average accounts receivable = ($3,677 + $3,241) / 2 = $3,459 Accounts receivable turnover = $34,350 / $3,459 = 9.9 Interpretation: The ratio measures the speed with which the receivables are converted into cash. E: Number of days sales in receivables: Number of days sales in receivables = 365 Days / Accounts Receivable Turnover For 2018: Days Sales in Receivables = 365 / 10.1 = 36.1 days For 2017: Days Sales in Receivables = 365 / 9.9 = 36.9 days Interpretation: This ratio measures the average number of days it takes to collect the accounts receivable. F: Inventory Turnover: Inventory Turnover = Cost of Goods Sold / Average Inventory For 2018: Average inventory = ($5,261 + $5,055) / 2 = $5,158 Inventory Turnover = $20,441 / $5,158 = 4 For 2017: Average inventory = ($5,055 + $4,838) / 2 = $4,946.5 Inventory Turnover = $19,038 / $4,946.5 = 3.8 Interpretation: It measures the efficiency with which the entity manages its inventory. G: Number of Days Sales in Inventory: Days Sales in Inventory = 365 Days / Inventory Turnover For 2018: 365 / 4 = 91.3 days For 2017: 365 / 3.8 = 96 days Interpretation: It measures the number of days the company takes to sell its inventory in a year. H: Ratio of Liabilities to Stockholders Equity: For 2018: Total liabilities = $6,040 + $3,468 + $3,216 = $12,724 Liabilities to Stockholders equity = $12,724 / $9,812 = 1.3 For 2017: Total liabilities = $5,474 + $3,471 + $1,907 = $10,852 Liabilities to Stockholders equity = $10,852 / $12,407 = 0.9 Interpretation: Shows the relationship between the liabilities and the owners’ equity. This ratio measures the claims of creditors over the claims of owners in financing the assets. A lower ratio indicates that the company has good ability to pay off the creditor’s obligations. I: Asset Turnover: Asset Turnover = Sales / Total Assets For 2018: $36,397 / $22,536 = 1.6 For 2017: $34,350 / $23,259 = 1.5 Interpretation: It measures the efficiency with which an entity manages its assets to generate revenue. J: Return on Total Assets: Return on Assets = Net Profit / Average Total Assets For 2018: Average total assets = ($22,536 + $23,259) / 2 = $22,897.5 ROA = $1,933 / $22,897.5 = 0.08 or 8% For 2017: Average total assets = ($23,259 + $21,379) / 2 = $22,319 ROA = $4,240 / $22,319 = 0.19 or 19% Interpretation: It measures the profitability of the entity in terms of assets employed into it. K: Return on Common Stockholders’ Equity Return of Common shareholders’ equity= Net Income-Preferred dividend/Average common shareholders’ equity For 2018: 1933/((12407+9812)/2)=0.17 For 2017: 4240/((12258+12407)/2)=0.34 L: Price-Earnings Ratio, assuming that the market price was $72.12 per share on May 29,2018, and $53.06 per share on May 30, 2017. Price Earning= Market price per share/Basic earning per share For 2018= 72.12/1.19=60.61 For 2017= 53.06/2.56=20.73
In 250 words please tell me whether or not you would recommend that I invest in Nike - you will need to substantiate your recommendation with your ratio findings from the first part of this assignment.
A:
Working Capital = Current Assets - Current Liabilities
For 2018: $15,134 - $6,040 = $9,094
For 2017: $16,061 - $5,474 = $10,587
Interpretation: This ratio determines a company's ability to weather financial crunch. Banking institutions are interested for this ratio before granting a loan.
B:
Current Ratio = Current Assets / Current Liabilities
For 2018: $15,134 / $6,040 = 2.5
For 2017: $16,061 / $5,474 = 2.9
Interpretation: Current ratio is a measure of short term solvency which measures the entity's capability to cover up its current liabilities through its current resources.
C: Quick Ratio:
Quick Ratio = Quick Assets / Current Liabilities
Where, Quick assets = Current assets - Inventories - Prepaid expenses
For 2018: Quick assets = $15,134 - $5,261 - $1,130 = $8,743
Quick Ratio = $8,743 / $6,040 = 1.4
For 2017: Quick assets = $16,061 - $5,055 - $1,150 = $9,856
Quick Ratio = $9,856 / $5,474 = 1.8
Interpretation: It is more conservative in terms of short-term liquidity. Quick assets only include cash and cash equivalents so it can measure a company's ability to pay off its current liabilities without having to worry about assets generated from sales.
D:
Accounts Receivable Turnover = Credit Sales / Average Accounts Receivable
For 2018: Average accounts receivable = ($3,498 + $3,677) / 2 = $3,587.5
Accounts receivable turnover = $36,397 / $3,587.5 = 10.1
For 2017: Average accounts receivable = ($3,677 + $3,241) / 2 = $3,459
Accounts receivable turnover = $34,350 / $3,459 = 9.9
Interpretation: The ratio measures the speed with which the receivables are converted into cash.
E: Number of days sales in receivables:
Number of days sales in receivables = 365 Days / Accounts Receivable Turnover
For 2018: Days Sales in Receivables = 365 / 10.1 = 36.1 days
For 2017: Days Sales in Receivables = 365 / 9.9 = 36.9 days
Interpretation: This ratio measures the average number of days it takes to collect the accounts receivable.
F: Inventory Turnover:
Inventory Turnover = Cost of Goods Sold / Average Inventory
For 2018: Average inventory = ($5,261 + $5,055) / 2 = $5,158
Inventory Turnover = $20,441 / $5,158 = 4
For 2017: Average inventory = ($5,055 + $4,838) / 2 = $4,946.5
Inventory Turnover = $19,038 / $4,946.5 = 3.8
Interpretation: It measures the efficiency with which the entity manages its inventory.
G: Number of Days Sales in Inventory:
Days Sales in Inventory = 365 Days / Inventory Turnover
For 2018: 365 / 4 = 91.3 days
For 2017: 365 / 3.8 = 96 days
Interpretation: It measures the number of days the company takes to sell its inventory in a year.
H: Ratio of Liabilities to
For 2018: Total liabilities = $6,040 + $3,468 + $3,216 = $12,724
Liabilities to Stockholders equity = $12,724 / $9,812 = 1.3
For 2017: Total liabilities = $5,474 + $3,471 + $1,907 = $10,852
Liabilities to Stockholders equity = $10,852 / $12,407 = 0.9
Interpretation: Shows the relationship between the liabilities and the owners’ equity. This ratio measures the claims of creditors over the claims of owners in financing the assets. A lower ratio indicates that the company has good ability to pay off the creditor’s obligations.
I: Asset Turnover:
Asset Turnover = Sales / Total Assets
For 2018: $36,397 / $22,536 = 1.6
For 2017: $34,350 / $23,259 = 1.5
Interpretation: It measures the efficiency with which an entity manages its assets to generate revenue.
J: Return on Total Assets:
Return on Assets = Net Profit / Average Total Assets
For 2018: Average total assets = ($22,536 + $23,259) / 2 = $22,897.5
ROA = $1,933 / $22,897.5 = 0.08 or 8%
For 2017: Average total assets = ($23,259 + $21,379) / 2 = $22,319
ROA = $4,240 / $22,319 = 0.19 or 19%
Interpretation: It measures the profitability of the entity in terms of assets employed into it.
K: Return on Common Stockholders’ Equity
Return of Common shareholders’ equity= Net Income-Preferred dividend/Average common shareholders’ equity
For 2018: 1933/((12407+9812)/2)=0.17
For 2017: 4240/((12258+12407)/2)=0.34
L: Price-Earnings Ratio, assuming that the market price was $72.12 per share on May 29,2018, and $53.06 per share on May 30, 2017.
Price Earning= Market price per share/Basic earning per share
For 2018= 72.12/1.19=60.61
For 2017= 53.06/2.56=20.73
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