GAAP to Non - GAAP
Both Nike and Adidas have healthy current ratios implying that they are able to meet current liabilities comfortably, though Nike is in a stronger position. Adidas has a low quick ratio, which is a more conservative version of the current ratio.
Looking at investor ratios, Adidas has a significantly higher dividend payout ratio and a higher dividend yield compared to Nike. From a valuation perspective, both stocks have similar PE multiples, albeit Nike is slightly cheaper.
Gearing ratios for both companies paint a healthy picture, but it is clear that Nike is in a stronger position compared to Adidas. Interest and debt payments are sufficiently covered by EBIT and there are no red flags as far as overall debt levels are concerned for both companies. Adidas has higher leverage compared to Nike.
Gross profit margins for both companies are comparable, meaning they enjoy similar economies of scale and supply chain efficiency. Nike’s net profit margins are higher than Adidas, implying that it has better control on operating expenses and indirect costs. Furthermore, Nike’s RoE and ROCE are substantially higher meaning that it is deploying debt and equity capital more efficiently compared to Adidas.
Turnover & Working Capital Cycle
The turnover ratios reveal that Nike has better inventory management and collection from debtors. Adidas on the other hand has more favourable payment terms with creditors. On an overall basis, the working capital cycle for both Adidas and Nike are extremely comparable.
So what is the big picture? Overall whilst both companies are healthy and there are no immediate red flags, there is no doubt that Nike has stronger fundamentals. Nike’s RoE and ROCE are substantially higher than Adidas. This is despite the fact that Adidas has higher leverage, implying that that Nike is doing a much better job with profitability and in utilizing its assets to generate sales. Nike is also slightly cheaper than Adidas on the basis of PE which is likely to appeal to investors.