Profitability Ratios: Examining Nike and Lululemon

These flashcards cover key concepts and ratios related to the profitability analysis of Nike and Lululemon, providing definitions and comparisons.

Gross Profit Margin Ratio

The ratio calculated as (Revenue - COGS) / Revenue, indicating the percentage of profit retained from each dollar of revenue.

Nike Gross Profit Margin

42.7%, indicating the percentage of profit retained for every dollar of revenue made.

Lululemon Gross Profit Margin

59.22%, indicating a higher percentage of profit retained for every dollar of revenue compared to Nike.

Net Profit Margin

The ratio calculated as Post-tax Net Income / Revenue, representing the percentage of profit a company retains from total revenue.

Nike Net Profit Margin

7%, meaning Nike keeps $0.07 as profit for every $1 made after all expenses.

Lululemon Net Profit Margin

17%, meaning Lululemon retains $0.17 as profit for every $1 made after all expenses.

Return on Equity (ROE)

The ratio calculated as Net Income / Average Total Equity, showing the profit generated per dollar of shareholder’s equity.

Nike ROE

23.29%, indicating the profit earned per dollar of shareholder equity.

Lululemon ROE

46%, indicating a higher profit earned per dollar of shareholder equity compared to Nike.

Return on Assets (ROA)

The ratio calculated as Net Income / Average Total Assets, indicating how efficiently a company earns profit from its assets.

Nike ROA

8.6%, meaning Nike earns around $0.086 for every dollar in assets.

Lululemon ROA

24.7%, indicating Lululemon earns almost $0.25 for every dollar in assets.

EBIT (Earnings Before Interest & Taxes)

The profit a company makes from its normal operations before paying interest or taxes.

Nike EBIT

4.83 billion, representing its profit from normal business operations.

Lululemon EBIT

2.40 billion, representing its profit from normal business operations.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

A measure showing a company’s cash-generating ability from operations without accounting for non-cash expenses.

Nike EBITDA

5.61 billion, indicating its ability to generate cash from operations.

Lululemon EBITDA

2.86 billion, indicating its ability to generate cash from operations.