This paper is a financial analysis comparison of two companies within the same industry. The entities are Skechers USA Incorporation (SKX) and Callaway Golf Incorporation, both of which are retail and competitive sports companies that trade on the stock market.
SKX which started in 1992 is an American company that has its headquarters (HQ) in Manhattan Beach, California. Skechers specializes in footwear, branded apparel, and a variety of other products (Selke, L. A. 2017). The company is widespread around the world in over 160 countries maximizing on their international retail licensing to grow in all continents. SKX also can boast over 3000 different styles in footwear for men, women, and children in the categories of lifestyle and performance (Abel, K. 2015).
Callaway International as another American entity founded in 1982 and is also based in California and is the biggest of its kind. This sports powerhouse organization is a golf company that specializes in equipment, footwear, apparel, and a host of other products. As an entity that declares a quarterly dividend, Callaway is just a few weeks away from launching a new product which is the chrome soft X golf balls to be available on the market February 16 (Chi, J. D.).
Here I will compare both entities’ performance at the end of December 2016 where I will highlight current financial statements by calculating and explaining ratios in comparison to both brands. I will also be looking at a brief history of the current financial performance focusing on revenue, net income, assets and liabilities, and shareholder’s equity. In addition to that, I will note my findings and make suggestions as to how both organizations may be able to improve operations to control and generate more profitable revenue for the end of the upcoming period.
Section-A: Locate income statements and balance sheets of two companies, make tables readable and easy to understand with proper editing.
Figure 1: Skechers U.S.A., Inc. and Subsidiaries – Consolidated Statements of Earnings (In thousands, except per share data)
Figure 2: Skechers U.S.A., Inc. – Consolidated Balance Sheets (In thousands, except par values)
Figure 3: Callaway Golf Inc. – Consolidated Statements of Income (In thousands, except per share data)
Figure 4: Callaway Golf Inc. – Consolidated Balance Sheets In thousands, except per share data
-B: Analyze current financial status and trends in a short history (recent 2-3 years); focusing on revenues, net income, assets/liabilities, shareholder’s equity.
Both entities closed out the stock market as of December 31, 2016, with Callaway at $10.94 and Skechers with $24.58, also return a profit at the end of the said period (figure 1 & 3). Both companies were able to efficiently use their current assets to offset short-term liabilities. The current ratio was a bit high with Callaway’s 2.46 and Skechers 2.94 also show quick ratios of 1.81 for Skecher and Callaway 1.45. They also showed effective management as they efficiently use their assets to generate revenue based on how quickly they were able to move stock within a specific period. Skechers’ management was more effective reporting a total asset turnover of 1.61 and an inventory turnover ratio of 2.92 while Callaway showing for the same period are total assets turnover 1.22 and inventory turnover ratio is 2.44.
No organization wants to be paying out too much of their money to debt. Properly managed businesses ensure that their debt stays as low as possible to enable payment of their debts and interest on some debt. Callaway manages to keep their debt to less than 25% (0.24) of their assets can pay their interest on debt reporting an interest coverage ratio of 18.65. Skechers debt is somewhat high valuing 1/3 (0.3) of its assets, but on the other hand, can afford to pay interest on debt over 59 times with an interest coverage ratio of 59.09.
Income/profit is every investor or business owner’s primary result in an organization, and I assure you that it’s no different for Callaway and Skechers. At the end of 2016, Callaway owners made it big with net income reporting a net profit margin of 21.92% and made their investors happy with returns on equity of 31.38%. Skechers who could not climb the double figures could only manage a net profit margin of 8.01% and offer investors 16.93% returns.
Section-C: Compare two companies’ financial performance by calculating financial ratios.
Figure-5: Financial Ratios calculation results
| Ratios | Skechers Inc. | Callaway Inc. |
| (December 31, 2016) | (December 31, 2016) | |
| Current Ratio | 2.94 | 2.46 |
| Quick Ratio | 1.81 | 1.45 |
| Total Assets Turnover Ratio | 1.61 | 1.22 |
| Inventory Turnover Ratio | 2.92 | 2.44 |
| Debt Ratio | 0.30 | 0.22 |
| Interest Coverage Ratio | 59.09 | 18.65 |
| Net Profit Margin | 8.01% | 21.92% |
| Return on Equity | 16.93% | 31.38% |
| Market Value | $3,808,204 | $1.030,704,387 |
| Price-to-earnings Ratio | 0.01 | 5.40 |
Additional Information for both organizations;
- Skechers USA Inc.
– Stock Price: $24.58 (figure 6) – December 31, 2016
– Number of outstanding shares: 154,931 (sum of Class A & B Common Stock, December 31, 2016).
2) Callaway Golf Inc.
– Stock Price: $10.94 (figure 7) – December 31, 2016)
– Number of outstanding shares: 94,214,295 (December 31, 2016).
Figure 6 – Historical stock prices for Skechers (December 31, 2016)…https://www.nasdaq.com/symbol/ely/historical
| Skechers U.S.A., Inc. Common Stock Historical Stock Prices | open | High | Low | Close/Last | Volume |
| 12/30/2016 | 24.7 | 24.85 | 24.51 | 24.58 | 1,171,998 |
| 12/29/2016 | 24.7 | 24.93 | 24.44 | 24.65 | 744,472 |
| 12/28/2016 | 24.7 | 24.846 | 24.33 | 24.6 | 1,043,973 |
| 12/27/2016 | 24.5 | 25.01 | 24.45 | 24.59 | 1,183,339 |
| 12/23/2016 | 24.5 | 24.86 | 24.4 | 24.48 | 1,485,133 |
| 12/22/2016 | 25 | 24.96 | 23.96 | 24.05 | 2,184,989 |
| 12/21/2016 | 25.2 | 25.2 | 24.67 | 25.13 | 1,151,866 |
| 12/20/2016 | 25.4 | 25.47 | 24.91 | 25.18 | 1,656,790 |
| 12/19/2016 | 25.2 | 25.58 | 25.03 | 25.34 | 1,454,181 |
| 12/16/2016 | 25.7 | 25.67 | 25.15 | 25.17 | 2,477,901 |
| 12/15/2016 | 26.1 | 26.2 | 25.48 | 25.61 | 2,033,759 |
| 12/14/2016 | 26.2 | 26.3 | 25.77 | 26.02 | 1,371,325 |
Figure 7 – Historical stock prices for Callaway (December 31, 2016)… https://www.nasdaq.com/symbol/ely/historical
| Callaway Inc. Common Stock Historical Stock Prices | open | High | Low | Close/Last | Volume |
| 12/30/2016 | 10.94 | 10.99 | 10.86 | 10.94 | 485,508 |
| 12/29/2016 | 10.96 | 11.04 | 10.88 | 10.94 | 447,898 |
| 12/28/2016 | 11.06 | 11.12 | 10.89 | 10.95 | 250,758 |
| 12/27/2016 | 11.05 | 11.1442 | 11.01 | 11.06 | 249,697 |
| 12/23/2016 | 10.91 | 11.08 | 10.9 | 11.06 | 433,040 |
| 12/22/2016 | 11.25 | 11.25 | 10.9 | 10.94 | 576,475 |
| 12/21/2016 | 11.38 | 11.395 | 11.26 | 11.27 | 418,302 |
| 12/20/2016 | 11.33 | 11.43 | 11.26 | 11.36 | 518,857 |
| 12/19/2016 | 11.27 | 11.39 | 11.19 | 11.24 | 524,014 |
| 12/16/2016 | 11.39 | 11.45 | 11.24 | 11.28 | 1,134,946 |
| 12/15/2016 | 11.47 | 11.66 | 11.33 | 11.35 | 802,418 |
| 12/14/2016 | 11.5 | 11.6 | 11.415 | 11.43 | 489,072 |
| 12/2/2016 | 11.96 | 12.05 | 11.64 | 11.68 | 642,219 |
| 12/1/2016 | 12.15 | 12.3 | 11.92 | 11.98 | 751,771 |
In this section, I will be explaining and comparing the current financial calculation results (figures 5) at the end of December 2016 for Callaway Golf Incorporation and Skechers USA Incorporation. Both Skechers Inc and Callaway Inc reported a profit for the said period, (Figures 1 & 3).
Liquidity is used to measure a company’s ability to satisfy its short-term obligations such as liabilities or debt with current assets. The current ratio which is one of two liquidity ratios is a tool used to measure if within a year an organization can effectively utilize its current assets to offset short-term debt (Brown, Rascher, Nagel, & McEvoy, 2016). Both companies reported a higher than normal current ratio (of 1.5 to 2) manage to effectively use their resources to meet short-term obligations. Callaway’s current ratio of 2.46, (figures 5) though high, and can reflect negatively on the organization, shows better judgment than its competitor by effectively utilizing its total current assets resources to meet short-term obligations. Though higher ratios are most times preferred and, in this case, means that the entity is liquid, it has its disadvantages and might not always be favourable for an organization. Skechers who was also able to meet its short-term obligations reported a current ratio of 2.94 (figures 5) is a bit high and could mean that the managing of resources was not as effective as they needed to be. Also, the lack of effective management could mean that they are not maximizing the use of cash and is carrying a high value of inventory.
The quick ratio is the other arm of liquidity ratio though seem similar, is a bit different as it focuses mainly on liquid assets that can be easily converted to cash in short-term, such as 90 days to settle current liabilities debts (Brown, Rascher, Nagel, & McEvoy, 2016). Both organizations have done well and are in a good position to offset their current liabilities by using their quick liquidated current assets without relying on other means. Sketchers with a ratio of 1.81 and Callaway with 1.45 (figure 5) shows that both entities are above 1 and can manage their resources effectively to pay current debt. Unlike the current ratio, inventory is not included because it takes longer to be liquidated, therefore effective management is important to ensure that the ratio is not too high because this can also mean that the reserve cash is too high.
Assets management looks at the effectiveness of an organization as it relates to using its assets (Brown, Rascher, Nagel, & McEvoy, 2016). The higher the total assets turnover ratio for a company, the better, which means that they are using their assets efficiently to generate revenue, (Brown, Rascher, Nagel, & McEvoy, 2016). After averaging total assets for 2015 and 2016, both companies reported a ratio above 1 means that both companies are effective in utilizing their assets. As sport retail organizations, they are operating within acceptable ratio showing Skechers’ total assets turnover of 1.61 (figure 5), again put them ahead of their competition as they are performing better by generating more revenue by maximizing the use of its assets. Callaway, who is not too far behind, reported total assets turnover ratio of 1.22 (figure 5) is also operating efficiently, but, need to be cautious not to fall below 1. The increase in sales between 2014 and 2016 (figure 5) shows signs that they are using their assets efficiently to generate revenue.
Inventory turnover ratio on the other hand quantifies how often an organization can move its stock in and out within a period (Brown, Rascher, Nagel, & McEvoy, 2016). Any organization with intentions to make a profit will need to keep track of the movement of their inventory, and Skechers and Callaway are no different. Both companies once more are managing their assets resources effectively to generate revenue as reflected in their inventory turnover ratio. Like most ratios, higher is preferred in this instant. Skechers with a ratio of 2.92 (figure 5) shows better results of the two that they are stronger in sales by how often they can sell and replace their inventory within a specific period.
Although Callaway’s inventory turnover ratio of 2.44 (figure 5) seem effective, they are not able to move their inventory in and out as fast over the same period as the competitor. This could mean that there is a weakness, such as excess non-moving inventory, which could mean that the management team is not as competent when buying stock for sale.
How a company finances its operations is especially important and leverage which measures that aspects of the business decide on sustainability. The financial ratio, debt ratio measures an organization’s debt as it relates to loans and shareholder’s investments (Brown, Rascher, Nagel, & McEvoy, 2016). On the other hand, though another ratio being high is preferred, a low value for debt ratio is preferred and reflect that while Callaway is more effective in operations, Skechers can slowly increase financial risk. The debt ratio calculation for both industries shows Skechers value at 0.3 and Callaway’s 0.24 (figure 5). When compared, Callaway’s debt is less than 25% of their assets, is saying that their debt is way less than the one-third of the assets of their competitor. On the other hand, Skechers who returned a debt ratio of 0.3 (figure 5) is a heavier borrower as 30% or one-third of their assets is debt and can result in an increased financial risk.
The interest coverage ratio is another tool business uses to measure the organization leverage that concludes if they can pay the interest on their debt or not (Brown, Rascher, Nagel, & McEvoy, 2016). The higher a company’s ratio, the happier they should be as it means that they can offset debt interest from their income or earnings. Skechers’ interest coverage ratio for 2016 which is 59.09 (figure 5) puts the organization in a good position as they can service their debt interest more than 59 times. Callaway, triple by the competitor was not as high, but with a ratio of 18.65 (figure 5), they are still able to meet their obligation but could only manage less than 19 times for the same period, which means that management is not as effective.
Productivity in an organization makes business owners happy as profit is their main aim to keep investors close. According to Brown, Rascher, Nagel, & McEvoy (2016), Profitability assesses a company’s ability to control expenses and generate a profit using net profit margin as the calculating tool which measures the effectiveness and efficiency of operations. Based on results, Callaway is likely one of the places to invest as it relates to the net margin ratio at the end of 2016 returning big with 21.92% (figure ), and a high ratio, in this case, is preferred and I am sure the owners would be happy. Though higher is not always better because it goes to the owner, this performance is telling investors that the company is effective and efficient in its operations. Skechers with a meager 8.01% (figure 5) when compared to its competitor, would maybe have a hard time attracting investors after this period. A low profit would not be an investor’s first choice, they would not feel confident that the organization is effective enough to compete to generate revenue within a period.
Companies invite investors to buy into their organization to expand to generate more revenue. Return on equity (ROE) is another vital tool that is used to measure the returns an investor receives at the end of a period on their investment (Brown, Rascher, Nagel, & McEvoy, 2016). We could agree that ROE is the sibling of net profit margin as they are governed by the same rules where it measures the effectiveness and efficiency to generate profit that will entice their investors. Again, high is especially better for shareholders to make them happy, but for the company, it means that higher is paying out more. Callaway had to turn over a massive 31.38% (figure 5) profit to their investor, while its competition Skechers did the opposite returning 16.93% (figure 51-52) to their shareholder on their capital.
High ROE seems normal as the further comparison shows that another competitor in the sports industries returns big to their investors. Nike Incorporation, over the last few years, has been paying out in double digits also between 20% and almost 30% to its investors (Nicholas, 2016). Like Callaway at the end of 2016, paying its investors 31.38%, Nike was not far behind with 26.17%.
Market value ratio which includes market value ratio and the price-to-earnings ratio is another financial tool that is used to estimate the book value of a company. The market value ratio is an easy method, but not as precise, is used to estimates the value of a company based on the stock market (Brown, Rascher, Nagel, & McEvoy, 2016). The future market value for both entities sees Skechers on December 31, 2016, $3,808,204 while Callaway’s market value on December 31, 2016, was $1,030,704,387 giving potential investors an idea where to invest.
The price-to-earnings ratio (P/E) measures corporate performance mainly amongst the stock market deciding how much investors will pay for each dollar of a company’s earning (Brown, Rascher, Nagel, & McEvoy, 2016). While a high P/E is preferred, the flip side to that could also mean that it is below average earnings. Callaway’s ratio of 5.4 indicates that an investor will pay $5.40 (figure 5) to earn $1 of its current earnings, while Skechers who at the end of 2016 with a P/E of 0.01 (figure 5) is offering its investors a rate of $0.01 to earn $1 of its current earnings.
Section-D: Suggestions to improve financial improvements
Two of most business operator’s main objectives are, making a profit and attracting investors. They should be able to maintain effective management practices that will attract the right investors to their organization without reservations. The current ratio for both entities was higher (figure 5) than the norm which is 1.5 to 2. Both organizations need to apply more effective skills or judgment in being able to satisfy their short-term obligation with their current assets to alleviate any doubts current or potential investors may have. Both entities should consider revisiting their policies and procedures, employing a finance advisor, and maybe a logistics expert to improve their operation to result in a bigger profit.
Both organizations made a profit for the periods 2014, 2015, and 2016 (figure 1 & 3), but there is always room for improvement if companies wish to maximize on generating revenue. While both entities need to be more effective in operations, Callaway more than Skechers should examine how they can better move their inventory in and out within a specific time. I would suggest they look at their buying pattern if they are buying what is trending. They can invest in software to track customer’s buying patterns, this investment can allow the reporting of specific data such as, 1) when customers buy, 2) What product and quantity they buy, 3) which sex buys more often, 4) how often they buy, 5) how often they buy the same product, and so on.
Another thing the organization should pay keen attention to is the age of the inventory. 1) Is there obsolete stock in the warehouse? 2) Are there assets that are not being utilized properly? Those are some key areas management should focus on.
Skechers’ debt ratio seems a little high, 1/3 of an organization’s assets equals its debt is not effective management and this can slowly increase financial risk for the company. A suggestion is, contract a financial advisor to assist with perfecting operations by controlling expenses so that the organization is better able to grow and as a result be more attractive to investors.
If an organization makes a profit it is fair to say, they did well even if there are areas that need improvement. After the calculations and thoroughly analyzing, both organizations based on their financial data, overall did well, hence making a profit and have done so consecutively for the years 2014, 2015, and 2016 (Figures 1 & 3).
References
Abel, K. (2015) Skechers’ Robert Greenberg on living the California dream. Retrieved February 14, 2018, from http://footwearnews.com/2015/influencers/power- players/robert-greenberg-lifetime-achievement-award-footwear-news-achievement- award-fnaa-shoes-174299/
Brown, M.T., Rascher, D.A., Nagel, M.S., & McEvoy, C.D. (2016). Financial management in the sport industry (2nd ed.). Scottsdale, AZ: Holcomb Hathaway Publishers.
Chi, J. D. The history of callaway golf. Retrieved February 14, 2018, from https://www.golflink.com/about_4700_history-callaway-golf.html
Nicolas, S. (2016) Nike sock: A dividend analysis. Retrieved February 16, 2018, from https://www.investopedia.com/articles/markets/012116/nike-stock-dividend-analysis-nke.asp
Selke, L. A. (2017). The history of skechers’ shoe. Retrieved February 13, 2018, from https://oureverydaylife.com/the-history-of-skechers-shoes-12181093.html
Historical stock price. Retrieve February 16, 2018, from https://www.nasdaq.com/symbol/ely/historical
Historical stock price. Retrieved February 16, 2018, from http://www.nasdaq.com/symbol/skx/historical
HP Sports Corner 