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Horizontal and Vertical Analysis Assignment
Question: Using the income statement, prepare a horizontal and vertical analysis on years 2017 for both Nike and Under Armour.
solution: Horizontal and vertical analysis
Out of numbers of method to analysis the financial statement, horizontal method use the historical data to measure the performance of reporting entities, this historical data consisting of ratios, line time over a numbers of accounting years. The horizontal comparison is either absolute comparison or it may be compression of percentage. While the vertical analysis is a method to analysis the financial statements, where each line items is listed as a percentage of base figure with in the statement.
Nike
The Nike Corporation operate throughout the world many country, the said corporation is leading multination footwear corporates. On analysis of the income statement, it can be judge that net income of the firm was continues fluctuated throughout the last four years, no consistence were noted. Net income during 2017 was 17 % higher 2016. In summaries, Nike performance in term of financial aspect, it was performing well and it had noted upward moving growth over a period of time. These things are good in terms of wealth creation and engagement with corporation.
Armour
The income statement of Armour ltd for 2017, show the overall financial presence during 2017, and compares the result of 2017 with last few years. From the give statement we can judge that the net income during 2017 is comparatively lower then past 4 years. The growth rate of net income during 2014 was 32 %, as compare to 2013, this rate was reduced during 2015, and reached at 28 % , Constance reduction in net income were noted. During 2017 the growth in net income were 3 % only as compare to 2016. Which create a number of question for the growth and continues survival of firm. Further the consolidated income from various income year were lower than what it was in past. Overall financial performance of the Armour is weak, Armour facing challenges for continues increase in cost and firm inability to control the cost of goods sold.
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Question: Perform the following ratios, Current, Debt, Return on Equity on years 2017 for each company.
solution: Ratio analysis
Table for Ratios
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Formula
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Armour
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Nike
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Debt Ratio
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Total debt / Total equity
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$ 1987725/ $ 2018542 = 0.98 %
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$ 8745 / $ 12407 = 0.70 %
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Current Ratio
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Current assets / Current liability
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$ 2337579/ $1060375 = 2.20
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$ 16061/ $ 5474 = 2.93
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Return on Equity
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Net income / Equity
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($ 46260) / $ 2018642 = ( 0.022)
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$ 4240/ $ 12407 = 0.34
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The above table shows the ratios of selected two leading corporation. Fromthe above table one things is clear that Nike was performing well, while Armour face difficulties in managing their stake in market and ensuring sufficient earing.
Debt ratio, show the financial risk and proportion of dent in capital structure of firm, from above data, one thing is clear that capital structure of Nike is comparatively sound than Armour.
While the current ratio show the liquidity condition of firm, it is always advisable that the current ratio shall be greater than 1, here in both the corporation. The current ratio is in excess of 1, which is good indication in terms of liquidity position of firm.
Return on equity shows the wealth for security holders. The negative result Is always worth situation for investor, here in current case Nike was doing well for its investors and Armour create a question for investor whether to continue their investment or not.
Question: List 3 observations from your comparison of the companies.
solution: Observation from the company
A) Nike corporation financial health and wealth is comparatively good then Armour corporation
B) Nike is in position to create a wealth for all associated stakeholders, where Armours fails to do so
C) Reason for growth of Nike is continues expansion in operation and increase in sales, while the reason for negative growth of Armour is a firm inability to control its production cost.
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