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GuruFocus has detected 2 Warning Signs with Nike Inc \$NKE.
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Nike Inc (NYSE:NKE)
Asset Turnover
0.37 (As of Feb. 2017)

Asset Turnover measures how quickly a company turns over its asset through sales. It is calculated as Revenue divided by Average Total Assets. Nike Inc's Revenue for the three months ended in Feb. 2017 was \$8,432 Mil. Nike Inc's Average Total Assets for the quarter that ended in Feb. 2017 was \$22,902 Mil. Therefore, Nike Inc's asset turnover for the quarter that ended in Feb. 2017 was 0.37.

Asset Turnover is linked to Return on Equity (ROE) through Du Pont Formula. Nike Inc's annualized Return on Equity (ROE) for the quarter that ended in Feb. 2017 was 36.45%. It is also linked to Return on Assets (ROA) through Du Pont Formula. Nike Inc's annualized Return on Assets (ROA) for the quarter that ended in Feb. 2017 was 19.93%.

Definition

Asset Turnover measures how quickly a company turns over its asset through sales.

Nike Inc's Asset Turnover for the fiscal year that ended in May. 2016 is calculated as

 Asset Turnover = Sales / Average Total Assets = Revenue (A: May. 2016 ) / ( (Total Assets (A: May. 2015 ) + Total Assets (A: May. 2016 )) / 2 ) = 32376 / ( (21600 + 21396) / 2 ) = 32376 / 21498 = 1.51

Nike Inc's Asset Turnover for the quarter that ended in Feb. 2017 is calculated as

 Asset Turnover = Sales / Average Total Assets = Revenue (Q: Feb. 2017 ) / ( (Total Assets (Q: Nov. 2016 ) + Total Assets (Q: Feb. 2017 )) / 2 ) = 8432 / ( (22652 + 23152) / 2 ) = 8432 / 22902 = 0.37

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Companies in the retail industry tend to have a very high turnover ratio.

Explanation

Asset Turnover is linked to Return on Equity (ROE) through Du Pont Formula.

Nike Inc's annulized Return on Equity (ROE) for the quarter that ended in Feb. 2017 is

 Return on Equity (ROE) (Q: Feb. 2017 ) = Net Income / Average Shareholder Equity = 4564 / 12522.5 = (Net Income / Revenue) * (Revenue / Average Total Assets) * (Average Total Assets / Average Equity) = (4564 / 33728) * (33728 / 22902) * (22902 / 12522.5) = Net Profit Margin * Asset Turnover * Leverage Ratio = 13.53 % * 1.4727 * 1.8289 = Return on Assets * Leverage Ratio = 19.93 % * 1.8289 = 36.45 %

Note: The Net Income data used here is four times the quarterly (Feb. 2017) net income data. The Revenue data used here is four times the quarterly (Feb. 2017) revenue data.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

It is also linked to Return on Assets (ROA) through Du Pont Formula:

Nike Inc's annulized Return on Assets (ROA) for the quarter that ended in Feb. 2017 is

 Return on Assets (ROA) (Q: Feb. 2017 ) = Net Income / Average Total Assets = 4564 / 22902 = (Net Income / Revenue) * (Revenue / Average Total Assets) = (4564 / 33728) * (33728 / 22902) = Net Profit Margin * Asset Turnover = 13.53 % * 1.4727 = 19.93 %

Note: The Net Income data used here is four times the quarterly (Feb. 2017) net income data. The Revenue data used here is four times the quarterly (Feb. 2017) revenue data.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Be Aware

In the article Joining The Dark Side: Pirates, Spies and Short Sellers, James Montier reported that In their US sample covering the period 1968-2003, Cooper et al find that firms with low asset growth outperformed firms with high asset growth by an astounding 20% p.a. equally weighted. Even when controlling for market, size and style, low asset growth firms outperformed high asset growth firms by 13% p.a. Therefore a company with fast asset growth may underperform.

Therefore, it is a good sign if a company's asset turnover is consistent or even increases. If a company's asset grows faster than sales, its asset turnover will decline, which can be a warning sign.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Nike Inc Annual Data

 May07 May08 May09 May10 May11 May12 May13 May14 May15 May16 turnover 1.59 1.61 1.49 1.37 1.37 1.53 1.53 1.54 1.52 1.51

Nike Inc Quarterly Data

 Nov14 Feb15 May15 Aug15 Nov15 Feb16 May16 Aug16 Nov16 Feb17 turnover 0.39 0.38 0.37 0.40 0.36 0.37 0.39 0.43 0.37 0.37
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