So let's try a little problem here. Let's try to take some information and download it into Excel and do a common size income statement from two different companies. We're going to do this in real time so you can see how you download it, how you do the calculations and what your interpretation is. And then I'm going to give you an action item to try with your organization and a competitor in the same industry. For our purposes, we're going to use Nike and Under Armour. These are two companies that are operating in the, if you will, the personal performance space. So athletic gear, Under Armour doesn't have shoes so much as Nike does. But they're both producing wear and gear for athletic performances. So we're going to go into Yahoo Finance and we're going to pull up the financials for Nike, which I am doing right now. And I am going to go to their income statement right here. And I am going to download Nike's income statement, their annual income statement, into Excel. And then what I'm going to do is I'm going to pull up the same for Under Armour and then do a side by side analysis between Under Armour and Nike. So here I am. I'm going to copy this into Excel. Here we go, and I'm going to copy, and what I'm going to do is I'm going to do Paste Special. Remember that we're going to paste it as Unicode text. This gives us the power to manipulate this thing over and over again. And I'm going to add a row at the top so that we know that this is all for Nike up here, okay. Now I'm going to go back in and do the exact same thing for Under Armour. Now one of the things we haven't talked about explicitly but you should have an idea is that whenever you're pulling up financials for an organization you have to know what their ticker symbol is. The ticker symbol for Nike is NKE. The ticker symbol for Under Armour is UA. And so if you don't know the ticker symbol, if you just start typing the company into the ticker symbol, look up area, you'll get a number of companies that have the same wordage and then you can find your company quite easily using that technique. So here I'm in Under Armour. And I'm going to go into the income statement for Under Armour and I'm going to pull that over to my Excel spreadsheet as well. So we're going to look at them side by side. So I'm pulling up my income statement right here next to that of Nike's, and remember we're going to use Paste Special and paste it as a Unicode text. All right, and so I'm going to, All right, so now one of the things I would like you to know is that using Yahoo Finance for both organizations, your lines items line up pretty well. In this case, they line up perfectly. I'm going to make sure that I label what's going here. This is Under Armour. And this is Nike over here, all right. So what am I going to do? I want to perform a side by side common size income statement analysis. So I'm going to look at Nike as a ratio of Nike and Under Armour as a ratio of Under Armour. What I'm going to do here is I'm going to insert a column next to Nike and call it Common Size, and then I'm going to insert another two columns here. I'll show you why in a second. I'm going to grab the information for Under Armour and copy this over to what I've got called column D. Right here. Okay, and so what I have here is I've got Nike in column B. And I've got Under Armour over here. Now I'm going to form a side by side common size analysis of these two organizations. This is my income statement. So what I'm going to do is I'm going to take all of the information in my income statement for Nike and divide each cell by my total revenue. So I'm going to say, information from this cell divided by B3. Now B3 is where my where my total revenue is and my total sales. And I'm going to turn that into a percentage, give myself several decimal places. And as I'm doing so, then I'm going to copy this down. And you notice that in areas where there's nothing there, you'll get this value. Let's erase all of these guys right here. Okay, and now I'm going to do the exact same thing for Under Armour. For Under Armour, I'm going to take all of the rows and divide it by my total sales again. But it's the total sales for Under Armour, right? I turn this into percentages as well and add a couple of decimal places, I'll need two, and then I'm going to copy that guy down, right there. Again, I'm going to delete all of the empty values. Good. Now one of the ideas behind the common size is that this gives you the power to look at two companies side by side using very similar reference point. If you don't, let's just look at Nike compared to Under Armour. Under Armour has sales of about $2.3 billion. Nike has sales of $27.799 billion. It is ten times the size of Under Armour. It's not really appropriate to look at them next to each other, just by looking at $27 billion and $2 billion. But when you do a common size analysis, this gives you the power to look at them side by side. So when you're doing so, what you see is for every $100 worth of sales, Nike spends $55.23 on cogs. Under Armour spends 51.26. So my gross profit, also known as my gross margin, for Nike is 44.77 on the dollar, right? So it's $44.77 out of 100 or $0.44.77 cents out of $1. For Under Armour, for every $100 in sales, its gross margin is 48.74. So $100 worth of sales produces $48.74 worth of gross revenue. Just operationally from a cost structure, Under Armour is starting a little bit ahead of Nike, okay, by a few percentages. All right, each one of these has SG&A, but look at this. For Under Armour, SG&A is about $37 per 100, where Nike is $31.53 per 100, or $0.37 on the dollar for Under Armor, and $0.31 on the dollar for Nike. So Under Armour just spends a little bit larger percentage on SG&A. Okay, so their operating income right here, their operating income, EBITDA, is 11.37 for Under Armour but 13.24 for Nike. So now you're start to have an idea about how each of these companies is operating what they're doing. Under Armour seems to be spending a little bit less on their goods, like on the raw materials, if you will. And Nike is spending a little bit more on the raw materials. So Under Armour's gross margin is a little bit better than that of Nike's. But Nike is spending less on the margin for SG&A than Under Armour is. So their EBITDA now is divergent. So Under Armour's EBITDA is $11 out of 100, 11.37 to be specific. And Nike's is $13.24 out of 100. So Nike has a better EBITDA than Under Armour, right. So then we go here, we've got some expenses and then we've got earning before interest and taxes. So about 12.75% for Nike, 11.32% for Under Armour, okay? Then they have income tax expenses. Nike is paying about 3% of their total sales in income taxes. And Under Armour about 4% of their total sales in income taxes. So net income, Nike's net profit margin, is 9.69 and Under Armour's profit margin is 6.96. It's very curious, lots of nines and sixes and things of that nature. And so what happens is Nike, even though it's spending a little bit more on its materials have a lower cost in general on SG&A, lower cost in terms of taxes as a percentage of sales, so that their net profit margin is almost 3 points, 2.5 points better than that of Under Armour. Both of these companies are profitable. Nike's net profit margin is 9 and change. Under Armour's net profit margin is almost 7, but Nike is a little bit more profitable. Why? Their SG&A is a little bit lower, their income tax expenses as a percentage of their total sales, is a little bit low. What does this mean? If Under Armour wants to be more competitive maybe it has to find a way of cutting back on SG&A, maybe it has to figure out a way to decrease its tax bill, right? If Nike wants to continue to be successful, figure out a way for it to, perhaps, trim some of its raw material expenses. But by looking at them side by side, this gives you the power to identify what are the success stories within the industry and how one company might take on some of the look of another company. Your action item is to try to get the income statement from your company and find an income statement of an organization that is similar to your company, maybe in the same industry. Or find two companies in the same industry, maybe in the industry that you work in, or something that's comparable. Identify two companies and look at their income statements side by side and ask the questions, which one's more efficient, which one is driving down cost, which one has a better net profit margins. And how is it that one company could start to look like the other company?
