Nike and Adidas: A Comparative Financial Performance Analysis Report

This report provides a comparative financial analysis of Nike and Adidas, two leading companies in the sportswear industry. The analysis includes a detailed examination of key financial ratios such as current ratio, quick ratio, debt ratio, debt-to-equity ratio, asset turnover, inventory turnover, profit margin, return on assets, and return on equity. The report highlights the trends observed in these ratios over a three-year period, comparing the performance of both companies and discussing their trajectories. The analysis suggests that while Nike's financial metrics have shown some decline, Adidas demonstrates a more positive trajectory due to its innovation and brand loyalty. The report also references relevant academic sources to support the financial assessments.

Nike VS Adidas

Nike
NIKE, Inc., my main business, is an American-based corporation specializing in clothing,
accessories, footwear, equipment, and services development, design, marketer, seller, and
manufacturing. Nike prefers to work with well-known individuals and organisations across the
globe. Nike has become a household name and a symbol of sportsmanship because to its
widespread popularity (Chen et al, 2020).
Adidas
Adidas AG is a German multinational business. The business was founded in Herzogenaurach
and is headquartered there. Adidas manufactures and designs shoes, accessories, and apparel.
Adidas is the second biggest sportswear company in the world, behind Nike. Adidas prefers to
sponsor big global sporting events like the Olympics, FIFA World Cup, and UEFA Champions
League (Meng et al, 2021).
Ratio analysis
 Current ratio
The current ratio refers to a company's capacity to repay its short-term financial commitments. A
positive indication for a company is a ratio greater than 1. Nike's current price-to-earnings ratio
is extremely high, and it's continuing to rise in a good direction. The company's short-term
financial commitments will be easy to pay (Liu et al, 2021).
Nike -
Adidas –

 Quick ratio
The quick ratio, like the current ratio, has been altered to make it more liquid-prone. Inventory is
not included in the current assets as a result of the ratio. Nike's quick ratio follows the same
pattern as its current ratio, and it has been on an upward trajectory for the last three years.
Nike -
 Total debt ratio
The debt ratio measures the amount of a company's assets that are supplied by its debt. Nike's
debt ratio will increase from 56% in 2018 to 74% in 2020, a trend that is not good for the
company.
Nike -
Adidas -

 Debt – Equity ratio
The debt-to-equity ratio measures how much overall liabilities and long-term debt are
outweighed by shareholders' equity. An unfavorable trend has emerged with this ratio, which has
gone up from 1.30 in 2018 to 2.89 in 2020.
Nike –
Adidas
-
 Total assets turnover
Asset turnover ratio measures a company's capacity to produce revenue from its assets. Nike's
profitability has declined over the last three years, as shown by a decrease in this ratio from 1.59
to 1.36 (Nica et al, 2021).
Nike -

Adidas –
 Inventory turnover
Inventory turnover ratio measures a company's capacity to sell and replace its inventory. More is
preferable in this case. Conversely, Nike's inventory-to-sales ratio has been declining, which is
not good news.
Nike –
Adidas -
 Day’s sales in inventory

This ratio shows the number of days that a business retains its inventory before selling it to
consumers. It is calculated as follows: Nike has seen an increase in the number of days in which
this ratio has been seen, which is not a good trend. In 2020, the number of days has risen from 92
to 112 days.
Nike –
Adidas -
 Profit margin on sales
Profit margin may be defined as the percentage of profit left over from sales after all costs have
been deducted. Profit margin ratio may be calculated by subtracting total costs from total
revenue and then dividing the result by the total number of expenses incurred.
Nike –
Adidas –

 Return on assets
This ratio measures the capacity of assets to produce profits in relation to the total amount of
assets owned. Over the course of three years, this ratio has been reduced by half, which is not a
good indication for the company's shareholders.
Nike –
Adidas -
 Return on equity
In order to determine the capacity of equity to produce profits, the return on equity ratio is
calculated. This ratio has decreased from 40 percent in 2018 to 32 percent in 2020, which is a
negative trend for Nike as it seeks to increase market share.
Nike –
Adidas –

The Trajectories of the Companies
Nike and Adidas are the undisputed leaders in footwear and retail clothing when compared side
by side. To be sure, both organisations are moving in distinct directions. Nike's customer base
has waned, and it's easy to understand why. It's because, unlike other shoe companies like
Adidas, their technology hasn't improved. Additionally, the shoe's design has been static for
some time, with no fresh releases to get consumers excited. Nike does not seem to be a smart
investment at this time, and if I had already invested, I would have sold my shares in the business
(Rana et al, 2019).
Adidas' trajectory has been the exact reverse of Nike's. Adidas, in my opinion, is a fantastic
investment opportunity right now. Adidas' brand loyalty has increased over the last three years,
with consistent year-on-year increases. Customers purchase their shoes on a regular basis since
they are always being updated with new shoe styles and partnerships. Adidas' 3rd party resale
success is a good indication of their comparative performance with Nike's sneakers. Adidas
sneakers that are in high demand sell for between 100 and 200 percent of their original price.
This is in contrast to Nike sneakers, which have a limited number of highly sought-after pairs
and only sell for 50% more than retail when they are released. In terms of shoe technology,
Adidas is light years ahead of Nike. Adidas began using Ultra Boost Technology in 2015, and
sales of their running shoes have increased dramatically since then. As a result, they've made
investments in 3-D printing technology, resulting in the Adidas 4D shoe line. These 3-D printed
shoes will pave the way for the day when everyone will be able to wear shoes that are custom-fit
to their feet. Nike has made investments in 3-D printing businesses, but so far, no products have
been launched, and the company has no new technology to discuss or compare with Adidas.

Reference
Chen, M., 2020. Financial performance analysis: a case study of Nike (Doctoral dissertation).
Meng, S., Wei, B., Xu, G. and Zhang, R., 2021, September. Analysis of Enterprise Operation
Under the Impact of COVID-19 Epidemic: A Case Study of Nike Inc. In 2021 International
Conference on Financial Management and Economic Transition (FMET 2021) (pp. 137-145).
Atlantis Press.
Liu, X., 2021, March. NIKE’s General Company Analysis Based on It 2020 Annual Report.
In 6th International Conference on Financial Innovation and Economic Development (ICFIED
2021) (pp. 799-803). Atlantis Press.
Nica, I., Chiriță, N. and Ionescu, Ș., 2021. Using of KPIs and Dashboard in the analysis of Nike
company's performance management. Theoretical & Applied Economics, 28(1).
Rana, S., 2019. Financial Analysis of Tata motors and Maruti Suzuki. Research review
international journal of multi disciplinary volume, 4, pp.897-900.