PROFITABILITY RATIO

2013 2014

Gross Profit
G ross Profit Margin Ratio=
Net Sales

11 034 12 446
Gross Pro f it Margin Ratio= Gross Profit Margin Ratio=
25 313 27 799

0.4359 43.59 0.4477 44.77

Net Profit
Net Profit Margin Ratio=
Net Sales

2 472 2693
Net Profit Margin Ratio= =0.0977 9.77 Net Profit Margin Ratio= =0.0969 9.69
25313 27 799

Net Income
Rate of Returnon Assets=
Total Assets

2 472 2 693
Rate of Return on Assets= =0.1409 14.09 Rate of Return on Assets= =0.1482 14.82
17 545 18 594

Net Income
Rate of Returnon Equity=
Average Shareholder s ' Equity

2 472 2693
Rate of Return on Equity= =0.2231 22.31 Rate of Return on Equity= =0.2488 24.88
11 081 10 824

ANALYSIS:

The Nike Inc. gain profit but that doesnt mean that they are profitable.

Profitability is simply the capacity to make a profit, and a profit is what is left over from

income earned after you have deducted all costs and expenses related to earning the

income. By using the profitability ratio, we can measure the companys performance.
Gross Profit Margin Ratio

It measures how profitable the goods and services of Nike Inc. The larger the

ratio, the more it is preferable. The gross profit margin in 2013 is 43.59%. It increases

by 1.18% in 2014. It means that every dollar sales in 2014, 44.77% of it is the gross

profit. It is most important when the gross profit will be higher because without an

adequate gross margin, a company will be unable to pay its operating and other

expenses and build for the future. To make the gross profit margin ratio higher the

company should assess its COGS and take analyze first on the overhead since its the

easiest to adjust rather than the labor and material because the quality of the product

might be affected.

Net Profit Margin Ratio

The net profit margin shows how much of each sales dollar shows up as net

income after all expenses are paid. The higher the margin is, the more effective the

company is in converting revenue into actual profit. The net profit margin in 2013 is

9.77%. It decreases by 0.08% in 2014. A low profit margin indicates a low margin of

safety: higher risk that a decline in sales will erase profits and result in a net loss. To

make the net profit margin ratio the Nike Inc. should minimize their expenses.

Expenses:

1. Selling and Administrative Expense It increases for what reason?

2. Demand Creation Expense The sales didnt increase that much
3. Operating overhead Expense
so the increase in these expenses
are not reasonable enough. If these
expenses are maintained or
minimized net income would
increase more.
Rate of Return on Assets

It measures the efficiency with which the company is managing its investment in

assets and using them to generate profit. The return on assets in 2013 is 14.09%. It

increases by 0.73% in 2014. The higher the percentage, the better it is because the

company is doing a good job using its assets to generate sales. Every investment of

Nike Inc. there is 14.82% of net income. To make the return on assets higher, the

company should analyze its assets first. Since in the balance sheet, the total assets

increases but the cash decreases because new equipment is bought. Maybe the

company needs to increase its capacity due to large demand but the sales didnt

increase that much. So, there are assets in the company that are idle and maybe some

doesnt have any salvage value. The company should make a move about it to generate

more sales using its assets.

Rate of Return on Equity

It is perhaps the most important of all the financial ratios to investors in the

company. It measures the return on the money the investors have put into the

company. The return on equity in 2013 is 22.31%. It increases by 2.57% in 2014. This

increase means that the Nike Inc. did a great job in using investors money during the

year. Nike Inc. is generating 24.88% in profit for every dollar that is invested by the

investors.