Research Project On COMPARATIVE RATIO ANALYSIS OF NIKE AND PUMA .

By

Guided by Prof. Mustafa Sapatwala

B E S Institute of Management and Research Mumbai

ACKNOWLEDGEMENT

It is great pleasure for me to acknowledge the kind of help and guidance received to me during my project work. I was fortunate enough to get support from a large number of people to whom I shall always remain grateful. I would like to express my sincere gratitude to Prof. Mustafa Sapatwala for giving me this opportunity to undergo this lucrative project for her great guidance and advice on this project, without which I will not be able to complete this project.

I am very thankful to Prof. for giving me valuable suggestion and encouragement to bring out a good project.

INDEX CHAPTER PARTICULARS NO. PAGE NO.

1 2 3 4 5 6 7 8 9 10

INTRODUCTION OBJECTIVE OF THE STUDY COMPANY PROFILE RESEARCH METHODOLOGY UNDERSTANDING THEROTICAL FRAMEWORK DATA ANALYSIS & INTERPRETATION OBSERVATION AND FINDINGS SUGGESTION & CONCLUSIONS LIMITATIONS BIBLIOGRAGHY

04 05 06 09 10 12 26 27 28 29

INTRODUCTION

This project report covers all the aspects relating to the PROFITABILITY ratios of NIKE and PUMA interpreted according to standards. This project was done with the help of secondary data as research in finance subjects is done on performance and not potential. The project selected by me is to do comparative PROFITABILITY ratio analysis for the above mentioned two companies using various financial statements. The main intention was to group or regroup the various figures and information appearing on the financial statement (either profitability statement or balance sheet or both) to draw the fruitful conclusions there from. I found that by comparing PROFITABILITY ratios of both the companies unveils why one company is more efficient in its activity as compared to the other. PROFITABILITY ratios are valuable as they depict how are you utilizing and managing your resources. All and all it was a good experience doing this project and will be of great help to me in future.

OBJECTIVES OF THE STUDY

To identify the comparative financial strengths and weakness of Nike industries and Puma. Through the net profit ratio and other profitability ratio, understand the profitability position of the company. To know the liquidity position of the company, with the help of Current ratio.

To find out the utility of financial ratio in credit analysis and determining the financial capability of the firm.

COMPANY PROFILE

NIKE Type: Public (NYSE: NKE) in NASDAQ market Founded : January 25, 1962 as Blue Ribbon Sports 1978 as Nike, Inc. Founders : WilliamJ. "Bill" Bowerman Philip H. Knight NIKE Headquarters: Washington County, Oregon, United States (Near Beaver ton, Oregon) Area served: Global Key people : Philip H. Knight (Chairman) Mark Parker (CEO &President) Employees: 32800 (2009), 35000(2010) , Subsidiaries: Cole Haan, Hurley International, Converse Inc. and Umbro. Industry: Sportswear, Sports Equipment, Athletic shoes ,Apparel ,Sports equipment Accessories History: 1957: Phil Knight and Bill Bowerman meet at the University of Oregon 1962: Phil Knight and Bill Bowerman founded Blue Ribbon Sports with the purpose of making quality American shoes and started out by selling their shoes from a car at the side of tracks to athletes and people who are interested 1963: Sold shoes from a manufacturer in Japan called Onitsuka Tiger 1972: Name changed to NIKE Inc, which was derived from the Greek goddess of Ironically paid only $35 for her design. The team also convinced marathon runners at Olympic Trails to wear NIKE shoes and this resulted in strong advertising especially when several runners were some of the top finishers. Popularity continued to grow throughout the 70s 1979: By this time NIKE had 50% of the US running shoe market 1980: NIKE goes public
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1988: Famous slogan Just do it introduced and company acquired Cole Haan. Throughout its existence, NIKE endorsed and sponsored different athletes like Michael Jordan the famous basketball player or Tiger Woods the young outstanding golf player 1992: Opens it first NIKETOWN store and a few years later, it acquired Canstar Sports, which included hockey equipment maker Bauer. 1995: NIKE acquired a license to place its logo on NFL uniforms 1997: NIKE launched the Jordan brand of athletic shoes and sportswear. 1998: the company had to cut 1,200 jobs because of falling sales in Asia 1999: demands for athletic shoes decreased in 1999, and NIKE declared its first drop in sales since 1994. Bowerman dies and as recognition for his achievements 2000: NIKE shifts a little more towards the electronic and technological sector and and historical impact on the industry, NIKE released a line of running shoes in his honor introduced a line of athletic electronics, including MP3 players, heart monitors, and two-way radios, which are always useful to athletes. 2001: The Company opened its first NIKEgoddess store in California 2002: Acquired Hurley International, a distributor of action sports apparel and Reebok takes Nikes place and acquires a license to place its logo on NFL uniforms 2003: NIKE acquired competitor Converse but left it as a separate operating company for the purpose of not loosing the brands popular name 2008 :Nike acquired sports appar el supplier Umbro, 2009: Air Jordan Shoe 2010: Nike Future Sole Design Competition

PUMA. CEO: Jochen Zeitz Home Office: Herzogenaurach, Germany Principal Products/Services: PUMA & Tretorn: footwear apparel and accessories Main geographic areas of activity: Italia, Jamaica, United States, Asia History : 1924 :Foundation of Gebrder Dassler Schuhfabrik, Herzogenaurach, Germany. 1948 :PUMA Schuhfabrik Rudolf Dassler is founded. Introduction of the PUMA Atom, PUMAs first football shoe. 1958 :In football, Swedish and Brazilian national team players, competing at the World Cup in Sweden, wear PUMA shoes bearing PUMAs signature formstrip for the first time. 1986:The PUMA limited partnership is transformed into a stock corporation; PUMA stock is publicly offered on the Munich and Frankfurt stock exchanges. 1993:Jochen Zeitz is appointed CEO and Chairman of PUMAs Board of Management. 1999:PUMA acquires its licensee PUMA UK from Dunlop Slazenger and turns it into a wholly owned subsidiary. 2002:Concept retail stores open in London, Rome, Tokyo, Milan, Boston, Frankfurt, Seattle and Melbourne. 2007:PUMA announces the signing of professional golfer, Hideto Tanihara. Starting in 2007, PUMA becomes the official supplier of all Taniharas golf footwear and apparel.

RESEARCH METHODOLOGY
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Research Methodology is a way to systematically solve the problems. It may be understood to study how research is done scientifically. In this, we study various steps that are generally adopted by the researcher in studying research problems along with the logic behind them, to understand why we are using particular method or technique so that the research results are capable of being evaluated. During my project work, I have used a lot of data to understand concept of Ratio Analysis. The data collected was interpreted and then used as information in project.

DEFINITON 1) Redman and Mory:Systematized effort to gain new knowledge

2) D. sliesinger and M.stephonson:The manipulation of things, concept or symbol for the purpose of generalizing to the extend, correct or verify knowledge, whether that knowledge aids in construction of theory or in practice of an art.

3) The Advanced Learners Dictionary of Current English:A careful investigation or inquiry especially through search for new facts in any branch of knowledge.

SOURCES OF DATA COLLECTION

Data for this project is collected through Secondary sources. Secondary data is collected with the help of following

1. Annual report
Majority of information gathered from data exhibited in the annual reports of the company. These includes annual reports of the year 2007-08, 2008-09,2009-10 and 2010-11.

2. Reference Books
Theory relating to the subject matter and various concepts taken from various financial reference books.

UNDERSTANDING THEORETICAL BACKGROUND

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RATIO ANALYSIS: INTRODUCTION:Ratio analysis is an important technique, which is widely used for interpreting financial statement. The technique serves as a tool for assessing the current and long-term financial soundness of a business. It is also used to analysis various aspects of operating efficiency and level of profitability. A German scholar used ratios for the first time in 1919.

DEFINITION:1)

Wixon, Kell and Bedford, Ratio is an expression of quantitative relationship

between figures drawn from financial statements. Hunt, Willant Donaldosa, Ratios are simply a means of highlighting in arithmetical terms, of relationship between figures drawn from financial statements.

2)

Conclusion: - Financial ratios are useful because they summarize briefly the result of detailed
and computation.

IMPORTANCE OF RATIO ANALYSIS

Ratios are useful for the following reasons:1) Helpful in Forecasting: - The ratio can be used by financial managers for future financial planning. Ratio calculated for a number of years work as a guide for the future. 2) Useful in Co-ordination: - Ratios are useful in co-ordination, which is very much needed in business. The efficiency and weakness of an enterprise if communicated properly, will establish a better co-ordination among areas of appreciation and control. 3) Helpful in Control: - The most important aspect of ratio analysis is that is very useful in controlling the areas of inefficiencies or weakness. It can be use by the management as a technique of correction. 4) Helpful in Communication: - Ratios are used for communication weak and good point to the concerned parties.

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5) Helpful in Efficiency Appraisal: - Ratios are the scale of comparison; here the variations in financial statement, if they need appreciation, are brought to limelight. 6) Helpful in Evaluation of Financial Position: - The ratio analysis is useful for financial diagnosis of an enterprise. The under mentioned ratios will make the above clear: Current Ratio: - It speaks about the working capital the company is having and the funds to pay-off its short-term commitments.

Solvency Ratio: - Profitability Ratio, Capital Gearing Ratio are all such ratio that can
evaluate the financial soundless or weakness of a company. 7) Helpful to Investors, Financial Institutions and Employees: - The ratios are economic barometer useful to all mentioned above as they can know the good and bad position of a company by making a comparative study of financial statement.

DATA INTERPRETATION

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COMPARATIVE RATIO ANALYSIS OF NIKE AND PUMA PROFITABILITY RATIOS:- This ratios measure the degree of operating success of a
company. The commonly used ratios to evaluate profitability are: Profit margin Asset turnover Return on assets Return on equity Earnings per share Profit after Tax 1) Profit margin = Sales NIKE million ($) PUMA million () 2008 2009 1822.8 100 =9.79 % 1487.0 100 =7.75 % 18627 19176 255.6 100 =10.13 % 262 100 =10.65 % 2524.2 2460.7 2010 1907 100 =10.03 % 19014 210.3100 =10.10 % 2083.0 2011 2133 100 =10.22 % 20862 200.8100 =8.77 % 2288.5 100

12 10 8 6 4 2 0 2008 2009 2010 2011 NIKE PUMA

Norm: - Higher the ratio shows higher efficiency and vice versa

Sales 2) Asset turnover = Average Total Assets

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2008 NIKE million ($) PUMA million () 18627 =1.61 times 11565.5 2524.2 =1.34 times 1880.85

2009 19176 =1.49 times 12846.15 2460.7 =1.26 times 1956.4

2010 19014 =1.37 times 13834.3 2083 2145.8 =0.97 times

2011 20862 =1.42times 14708.5 2288.5 =0.95 times 2394.55

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 2011 NIKE PUMA

Norm: - Higher the ratio shows higher efficiency in utilizing its assets.

Profit after Tax 3) Return on Assets = 100 Average Total Assets

2008 NIKE million ($) PUMA million ()

2009

2010

2011

1822.8 100 =15.76 % 1487.0 100 =11.58 % 1907 100 =13.78 % 2133 100 =14.50 % 11565.5 12846.15 13834.3 14708.5 255.6 100 =13.59 % 262 100 =13.39 % 210.3100 =9.80 % 1880.85 1956.4 2145.8 200.8 100 =8.39 % 2394.55

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20 15 10 5 0 2008 2009 2010 2011 PUMA NIKE NIKE PUMA

Norm: - Higher the ratio shows higher return on investments. Profit after Tax 4) Return on Equity = 100 Average Shareholders equity

2008 NIKE million ($) PUMA million ()

2009

2010

2011

1822.8 100 =24.55 % 1487.0 100 =18.00 % 1907 100 =20.68 % 2133 100 =21.77 % 7425.65 8259.35 9223.55 9798.5 255.6 100 =21.92 % 262 100 =21.68 % 210.3100 =16.69 % 200.8 100 =13.80 % 1166 1208.5 1259.85 1455.35

30 25 20 15 10 5 0 2008 2009 2010 2011 NIKE PUMA

Norm: - Higher the ratio shows higher efficiency in the use of shareholders funds. Net profit after minority interests
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5) Earnings per Share = Weighted Average Number of Equity Shares NIKE million ($) PUMA million () 2008 $ 3.74 15.15 2009 $3.03 8.50 2010 $3.86 12.51 2011 $4.39 13.15

2011

2010 PUMA 2009 NIKE

2008 0 5 10 15 20

Norm: - Higher the EPS higher profitability from the shareholders perspective.

LIQUIDITY RATIOS: Current ratio Quick ratio Debtor turnover Inventory turnover

Liquidity is the ability of a business to meet its short-term obligations when they fall due. We examine the following four ratios:

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Current Assets 1) Current Ratio = Current Liabilities

2008 NIKE million ($) PUMA million () 8839.3 3321.5 1362 614.8 = 2.66 9734 3277 2009 = 2.97 10959 3364 1547.2 799.0 2010 = 3.26 11297 3958 2011 = 2.85

= 2.22

1359.2 = 2.19 620.0

= 1.94

1616.5 = 2.06 783.2

12 10 8 6 4 2 0 2008 2009 2010 PUMA NIKE 2011 NIKE PUMA

Norm: - Higher the ratio indicates companys ability to pay its debts in the short-term.

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Quick Assets 2) Quick Ratio = Current Liabilities

2008 NIKE million ($) PUMA million () 8009.8 3321.5 1202.3 614.8 = 2.41 8986.4 3277 2009 = 2.74 10086 3364 1366.3 799.0 2010 = 2.99 10703 3958 2011 = 2.70

= 1.96

1231.9 = 1.99 620.0

= 1.71

1432.4 = 1.83 783.2

3 2.5 2 1.5 1 0.5 0 2008 2009 2010 2011 NIKE PUMA PUMA NIKE

Norm: - Higher the ratio indicates lower the incidence of inventory in inflating the current ratio.

Sales 3) Debtor Turnover = Average Debtors

2008 NIKE million ($) PUMA million () 18627 425.5 = 43.78 19176 439.15 2009 = 43.67 19014 441.6 2010 = 43.06 20862 361 2011 = 57.79

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Average Debtors 4) Average Debt Collection = Sales/360 days

2008 NIKE million ($) PUMA million () 360 = 8.22 days 43.78 2009 360 = 8.24 days 43.67 2010 360 = 8.36 days 43.06 2011 360 = 6.23 days 57.79

Cost of Goods Sold 5) Inventory Turnover = Average Inventories

2008 NIKE million ($) PUMA million () 10239.6 2280.25 1217.6 402.2 =4.49 times =3.03 times 10572.0 2397.70 1204.2 389.65 2009 =4.41 times =3.09 times 2010 10214.0 =4.64 times 2199.0 1361.6 392.05 =3.47 times 2011 11354.0 =4.47times 2378.0 1131.4 =2.31 times 490.8

5 4 3 2 1 0 2008 2009 2010 2011 NIKE PUMA

Norm: - ratio shows the number of times a companys inventory is turned into sales.
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SOLVENCY RATIOS:- The long-term solvency of a business is affected by the extent of debt
used to finance the assets of the company. Debt-to-equity ratio Liabilities-to-equity ratio Interest cover

Secured Loans + Unsecured Loans 1) Debt-to-equity Ratio = Shareholders Equity

2008 NIKE million ($) PUMA million () 618.8 7830 = 0.079 780.1 8693

2009 = 0.089 584.4 9754 39795 90381

2010 = 0.059 663 9902

2011 = 0.067

= 0.440

38281 = 0.437 87555

All Liabilities 2) Liabilities-to-equity Ratio = Shareholders Equity

2008 NIKE million ($) PUMA million () 4617.1 7830 721.5 1177.2 = 0.59 4556.2 8693

2009 = 0.524 4665.0 9754 661.75 903.81

2010 = 0.48 5155 9902

2011 = 0.520

= 0.613

774.2 = 0.624 1239.8

= 0.732

636.59 = 0.727 875.55

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0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2008 2009 2010 2011 NIKE PUMA

Norm: - Higher the ratio shows higher investment.

Profit before Interest and Tax 3) Interest cover = Interest Expense

2008 NIKE million ($) PUMA million () 2500 38.7 = 64.5 times 1957 40.2 2009 = 48.68 times 2517 36.4 278.9 4.1 2010 = 69.3 times = 68.02 times 285.0 = 73.08 times 3.9 2011

325.4 = 295.82 times 1.1

192.4 = 83.65 times 2.3

400 350 300 250 200 150 100 50 0 2008 2009 2010 2011 PUMA NIKE

Norm: - Higher the ratio implies adequate safety for payment of interest even drop in the companys earnings.
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Shareholders Funds 4) Properietary Ratio = Total Assets

2008 NIKE million ($) PUMA million () 7830 = 0.63 12442.7 1177.2 1898.7 = 0.62

2009 8693.1 = 0.66 13249.6 1239.8 = 0.616 2014.1 9754 14419

2010 = 0.67 9843 14998

2011 = 0.656

903.81 = 0.576 1569.85

875.55 = 0.579 1512.20

0.68 0.66 0.64 0.62 0.6 0.58 0.56 0.54 0.52 2008 2009 2010 2011

NIKE PUMA

Norm: - Higher the ratio shows the long term or future solvency of the business.

5) RETURN ON NETWORTH =

NPAT SHAREHOLDERS FUND

X 100

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2008 NIKE million ($) PUMA million () 1.88 100 =24.01 % 7.83

2009 1.49 100 =17.15 % 8.69

2010 1.91 100 =19.59 % 9.75

2011 2.13 100 =21.65 % 9.84 7870 100 = 8.99 % 87555

232.8 100 =19.78 % 128.2 100 =10.34 % 8618100 = 9.54 % 1177.2 1239.8 90381

OBSERVATIONS/ INTERPRETATION:The above ratio indicates that in Nike, the net profit available to equity shareholder is rising from 2009 to 2011 whereas in Puma return on networth is declining from 19.78 in 2008 to 8.99 in 2011.

25 20 15 10 5 0 2008 2009 2010 2011 PUMA NIKE NIKE PUMA

Norm: - Higher the ratio shows higher efficiency and vice versa.

6) GROSS PROFIT RATIO = GROSS PROFIT X 100 SALES 2008 NIKE million ($) PUMA million () 8.39 100 =45.06 % 18.63 2009 8.60 100 =44.84 % 19.18 2010 8.80 100 =46.29 % 19.01 2011 9.51 100 =45.59 % 20.86

1306.6 100 =51.76 % 1262.4100 =51.30 % 1344.8100=64.56% 1157.1100=50.56 % 2524.2 2460.7 2083.0 2288.5

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The Ratio if we compare it shows that1)Failure in managing purchases,production,sales and inventory 2)Loose control over direct costs of labour,fuel,freights etc. 3)Lower productivity and lower margin to meet other expenses

70 60 50 40 30 20 10 0 2008 2009 2010 2011 NIKE PUMA

Norm: - Higher the ratio shows higher efficiency and vice versa.

7) OPERATING RATIO = COGS + OPERATING EXPENSES X 100 SALES 2008 NIKE million ($) PUMA million () 2009 2010 26.75100=140.71% 19.01 2011 29.4 100 =140.94 % 20.86

26.53100 =142.40 % 27.89 100=145.41 % 18.63 19.18 2107.7 100=83.49 % 2076.6100=84.39 % 2524.2 2460.7

2275.3100=109.23% 2016.9100=88.13 % 2083.0 2288.5

The Ratio if we compare it shows that1) High efficiency in managing the Operations of the concern like purchases made at lower prices,optimum level of production,good inventory management and good control of direct cost of labour,fuel,freight etc. 2) A very good Margin available to meet non-operating Expenses.
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INTERPRETATION:-

The above table shows that in Puma, Operating ratio is increasing year by year from 2008 to 2010 and in Nike there is no major change in operating ratios from 2008 to 2011.As we compare we come to know that Nike is performing well than Puma.
2011

2010 PUMA 2009 NIKE

2008 0 50 100 150 200

Norm: - Higher the ratio shows higher efficiency and vice versa.

8) EXPENSES RATIO = EXPENSES X 100 NET SALES

2008 NIKE million ($) PUMA million () 16.19100 = 86.90 % 18.63 890.1 100= 35.26 % 2524.2

2009 17.32 100= 90.30 % 19.18 872.4100= 35.45 % 2460.7

2010

2011

16.54100= 87.01 % 18.05 100 =86.53 % 19.01 20.86 913.7100= 33.76% 2706.4 885.5100= 38.69 % 2288.5

Expense ratios indicate the relationship of various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Hence, expense ratios are calculated by dividing each item of expenses or group of expense with the net sales to analyze the cause of variation of the operating ratio.

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The ratio can be calculated for individual items of expense or a group of items of a particular type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and higher the operating ratio, lower is the profitability.

2011 2010 2009 2008 0 50 100 PUMA NIKE

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OBSERVATION AND FINDINGS

In this project I calculate some ratios; these ratios are very useful to interpret financial position of the company. From that it is clear that the Nike and Puma are in advanced stage. From the ratios calculated above following conclusions can be drawn. The gross profit earned by the both the companies are declining every year. From 2008 to 2011, it is fluctuating a lot which is due to failure in managing purchases, production, sales and inventory or loses control over direct costs of labor, fuel, freights etc. Operating ratio of Puma going down from 2010 to 2011 which is nothing but due to certain reasons like low efficiency in managing the operations of the company or low margin available to meet non-operating expenses whereas as compared to Nike the fluctuations are not much. The net profit is nothing but profit earned by the company after deducting interest and taxes. The graph is showing that in Puma from 2008 to 2011,the net profit is declining which is due to inefficiency in managing its activities like trading, production, financing and investment or unsatisfactory control over operating or non operating costs whereas in Nike its rising from year to year.

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SUGGESTIONS AND CONCLUSION:-

The in-depth analysis of key financial ratios in this project helps in measuring the financial strength, liquidity conditions and operating efficiency of the company. It also provides valuable interpretation separately for each ratio that helps organization implementing the findings that would help the organization to increase its efficiency. Ratios are only post mortem analysis of what has happened between two balance sheet dates. For one thing the position of the company in the interim period not revealed by analysis, moreover they give no clue about the future. Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather than as an end itself. From the analysis it is evident that the gross profit ratio is good, whereas the operating ratio is around optimum level to the industry standards. As a whole the liquidity position of the company is good. The company not very well used its fixed assets efficiently company has reduce it in order to invest the major portion in working capital or investment in current assets. This is one of the reason for profit fluctuation. Thus finally the company must try to improve its profit margins as they are below industry levels. This improvement may also bring up its return on investment and overall efficiency to the company. The business environment of both the company is reasonably good. The companys track record is always oriented towards profitable growth and with strong fundamentals

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LIMITATIONS
Though the every researcher tries his/her best to fulfill the objectives of his, her study, but still there are some limitation. The authority and genuinely of the data received cannot be tested as every company does not disclose al l of its records on internet or discloses bon the financial statement. False result Accounting ratio is based on data drawn from accounting records. In this case if data is correct, then only the ratio will be correct. The data therefore must be absolutely correct. Effect of price level changes Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of the assets. The comparison is rendered difficult because of differences in situations of one company as compared to the other. Ratios are tool of quantitative analysis only. Normally qualitative factors are needed to draw conclusions. Ratio Analysis is only the beginning as it gives only a little information for the purpose of decision making.

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BIBLIOGRAPHY
Following books were referred for carrying out the project: 1. Analysis of Financial Statements by Dr.P. Premchand Babu. 2. Financial Management by KHAN AND JAIN. 3. Annual Reports of Nike and Puma. 4. Financial Accounting by R. Narayanswamy.

Following websites were referred: 1. www.nike.com 2. www.puma.com 3. www.annualreports.com 4. www.census.gov 5. www.german-reports.com

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