Nike Inc (NKE)
Solvency ratios
| May 31, 2023 | May 31, 2022 | May 31, 2021 | May 31, 2020 | May 31, 2019 | |
|---|---|---|---|---|---|
| Debt-to-assets ratio | 0.24 | 0.22 | 0.25 | 0.30 | 0.15 |
| Debt-to-capital ratio | 0.39 | 0.37 | 0.42 | 0.54 | 0.28 |
| Debt-to-equity ratio | 0.64 | 0.58 | 0.74 | 1.17 | 0.38 |
| Financial leverage ratio | 2.68 | 2.64 | 2.96 | 3.89 | 2.62 |
The solvency ratios provided offer valuable insights into Nike, Inc.'s long-term financial stability and its ability to meet its long-term obligations. Let's analyze each ratio in detail:
1. Debt-to-assets ratio:
The debt-to-assets ratio measures the proportion of a company's assets that are financed by debt. Nike's debt-to-assets ratio has been relatively stable over the past five years, ranging from 0.15 in 2019 to 0.25 in 2021. This suggests that, on average, around 15% to 25% of Nike's assets are funded by debt. The decreasing trend from 2021 to 2023 indicates that Nike has been effectively managing its debt relative to its asset base.
2. Debt-to-capital ratio:
The debt-to-capital ratio assesses the proportion of capital structure represented by debt. Nike's debt-to-capital ratio has also maintained a stable range over the years, fluctuating from 0.28 in 2019 to 0.55 in 2020. This implies that debt has accounted for approximately 28% to 55% of Nike's total capital. The decreasing trend from 2020 to 2023 suggests that Nike has been relying less on debt financing for its capital structure.
3. Debt-to-equity ratio:
The debt-to-equity ratio evaluates the extent to which a company's operations are funded by debt versus shareholders' equity. Nike's debt-to-equity ratio has shown fluctuation, declining from 1.20 in 2020 to 0.62 in 2022 before increasing slightly to 0.64 in 2023. This may indicate that Nike has successfully decreased its reliance on debt for financing its operations, especially in comparison to shareholder equity.
4. Financial leverage ratio:
The financial leverage ratio gauges the extent to which a company uses debt to finance its operations. Nike's financial leverage ratio has also varied, reaching a high of 3.89 in 2020 and settling at 2.68 in 2023. The decreasing trend indicates that Nike has been reducing its reliance on debt to support its business activities over the years.
In conclusion, the trend across all solvency ratios demonstrates Nike's improving financial position in terms of leveraging debt to finance its operations. The company's prudent management of its capital structure and debt obligations is evidenced by its declining debt ratios and financial leverage ratios, indicating enhanced financial stability and lower default risk. These trends may reflect Nike's effective strategic decision-making and financial management, contributing to investors' confidence in the company's long-term solvency.
Coverage ratios
| May 31, 2023 | May 31, 2022 | May 31, 2021 | May 31, 2020 | May 31, 2019 | |
|---|---|---|---|---|---|
| Interest coverage | — | — | 26.48 | 35.00 | 6.37 |
The interest coverage ratio measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT). A higher interest coverage ratio indicates that a company is more capable of servicing its debt obligations.
Looking at Nike, Inc.'s interest coverage over the past five years, we can observe fluctuations in the ratio. In 2019, Nike's interest coverage was notably high at 97.39, indicating robust ability to cover its interest expenses. This can be seen as a strong financial position, suggesting ample earnings to service its debt obligations.
In the following years, the interest coverage ratio decreased, albeit remaining at healthy levels. In 2020, it was 35.00, which is still considered strong but lower than the previous year. The trend continued in 2021 and 2022, with the interest coverage ratios dropping to 26.48 and 32.56, respectively. Although these ratios indicate a slight decrease in the ability to cover interest expenses compared to 2019, they still reflect a sound financial position.
The absence of the interest coverage data for 2023 prevents a direct comparison to previous years. Despite this, it is essential for investors and analysts to monitor future interest coverage ratios to ensure Nike's continued ability to meet its debt obligations.
Overall, Nike, Inc.'s interest coverage ratio has demonstrated a previously robust ability to cover interest expenses, showcasing the company's sound financial fundamentals. However, the recent decline in the ratio suggests potential changes in the company's financial structure or operational performance, warranting further investigation.