Nike, Inc.

In: Business and Management

Submitted By bknoske
Words 3241
Pages 13
Nike, Inc. Accounting Analysis
Brian Knoske
Harding University

Abstract
Nike, Inc. is one of the most successful companies in the world. They consistently post high revenue numbers, which can be attributed to their excellent worldwide view. They are the world leader in footwear sales, which was the product that the company was originally built on. When Phil Knight and Bill Bowerman originally formed a company, they only wanted to provide athletes with a better shoe. Their success keeps their return on stock consistently up, which is a difficult thing to come by in these tough economic times. If Nike wishes to remain a successful company, they will have to appropriately deal with their accusations of poor working conditions for their foreign warehouses.

Description of Company Nike, Inc. is a company that specializes in designing and selling athletic footwear and apparel (Nike, inc., 2011). Their products are of high quality and reasonable price, leading them to be highly sought after by consumers. This has led Nike, Inc. to become the number one athletic footwear supplier in the United States (Nike, inc., 2011). Nike, Inc. is also one of the world leaders in selling athletic uniforms, apparel, and casual clothing. In addition to designing and selling their products, Nike also operates NIKETOWN stores, Nike Factory Outlets, Nike Women’s Shops, and an online website (Nike, inc., 2011). Nike’s products are sold in 690 of these stores worldwide as well as at an additional 23,000 retail locations worldwide (Nike, inc., 2011). Nike employs more than 35,000 people worldwide on six different continents (Nike, inc., 2011). Nike, inc. is a company that trades publicly on the stock market. The current cost of a stock for an investor is $106.68 (Nike, inc., 2012).
History of Company Nike, Inc. began with a handshake between two visionaries, Bill…...

Similar Documents

Nike, Inc. Marketing Plan

...Plan NIKE, Inc. Executive Summary As a heavyweight company that manufactures all its own products, NIKE is able to reach into just about every aspect of the sports market. All its’ products are developed, from the apparel to the footwear, and are able to reach women, men, and children throughout the globe. NIKE creates products tailored for just about every sports event: “running, training, basketball, soccer, sport-inspired casual shoes, and kids’ shoes. It also markets footwear designed for baseball, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, and wrestling”. All this gear is available through NIKE’s retail stores, including, but not limited to, trademarks such as “Cole Haan, Converse, Chuck Taylor, All Star, One Star, Star Chevron, Jack Purcell, Hurley, and Umbro”. Another successful marketing strategy is to implement the face of a famous athlete with the product in order to increase popularity. This has been done with Michael Jordan and the Nike shoes’ “Jordan’s”. Furthermore Nike has even granted customers the ability to have a degree of customization in shoe products that they order. This is yet another successful method that has greatly yielded to the customer’s specific designs. This idea of catering to a customer’s design is considered a breakthrough and currently this appears to be that path Nike is following on. A shop was opened where customers could design shoes that Nike would make and Nike has......

Words: 3105 - Pages: 13

Financial Analsis of Nike, Inc....

...req'd to achieve target ROE = Target ROE × Equity = $56,250 Profit margin needed to achieve target ROE = NI/Sales = 9.45% 18. Brookman Inc's latest EPS was $2.75, its book value per share was $22.75, it had 315,000 shares outstanding, and its debt ratio was 44%. How much debt was outstanding? a. $4,586,179 b. $4,827,557 c. $5,081,639 d. $5,349,094 e. $5,630,625 Answer: e EPS $2.75 BVPS $22.75 Shares outstanding 315,000 Debt ratio 44.0% Total equity = Shares outstanding × BVPS = $7,166,250 Total assets = Total equity/(1 − Debt ratio) = $12,796,875 Total debt = Total assets − Equity = $5,630,625 19. Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-assets ratio was 45.0%. Based on the DuPont equation, what was the ROE? a. 13.82% b. 14.51% c. 15.23% d. 16.00% e. 16.80% Answer: a Sales $325,000 Assets $250,000 Net income $19,000 Debt ratio 45.0% Debt = Debt % × Assets = $112,500 Equity = Assets − Debt = $137,500 Profit margin = NI/Sales = 5.85% TATO 1.30 Equity multiplier = Assets/Equity = 1.82 ROE 13.82% 20. Last year Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an equity multiplier of 1.2. ......

Words: 3707 - Pages: 15

Cost of Capital: Nike. Inc

...value rather than the market value. The book values are historical data, not current ones; on the contrary, the market recalculates the values of each type of capital on a continuous basis, therefore, market values are more appropriate. 2) The cost of debt should not be calculated by “taking total interest expense for the year 2001 and dividing it by the company’s average debt balance. These historical data would not reflect Nike’s current or future cost of debt. 3) She mistakenly used the average Beta from year 1996 to 2001. The average Beta could not represent the future systemic risk, and we should find the most recent Beta as Beta estimate in this situation. 2. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. Answer: 1) Weights of equity and debt: Market value of equity = Current share price x Current shares outstanding = $42.09 x 271.5m = $11,427.44m Due to the lack information of market value of debt, we could use the book value for calculation: Market value of debt = Current portion of long-term debt + Notes payable + Long-term debt = $5.4m + $855.3m + $435.9m = $1,296.6m We = $11,427.44m/($11,427.44m +$1,296.6m) = 89.81% Wd = $1,296.6m/($11,427.44m +$1,296.6m) = 10.19% 2) Cost of Debt: We can calculate the current yield to maturity of the Nike’s bond to represent Nike’s current cost of debt. Po=$95.6 N=20x2=40 PAR=$100 PMT=$100x6.75%/2=3.375 By......

Words: 1480 - Pages: 6

Financial Performance: Nike Inc and Gap Inc.

...Gap Inc. and Nike, Inc. Overview Gap Inc. and Nike, Inc. Overview Financial Performance: Nike, Inc and Gap Inc. Nike, Inc. and Gap Inc. achieved top ranks for specialty retailers of 2007 according to CRO (Corporate Responsibility Officer, 2007) Magazine for “100 Best Corporate Citizens 2007.” Shareholders review various financial reports which help determine which organization yields the greatest profits and minimum loss in cash flow. This review contains two-year comparisons for Nike, Inc. and Gap Inc. by analyzing ratios for Liquidity and Asset Utilization, Debt and Interest Coverage, and Market based ratios. Analysts evaluate market and industry trends periodically that help determine where a company is most profitable. Usually, stockholders are interested in profitability ratios. However, lenders and suppliers favor liquidity ratios detailing how assets compare with current liabilities. Respectively, according to results for Liquidity and Asset Utilization, the current ratios, (current assets / current liabilities) shows for every $1.00 of current liabilities for Nike, Inc. has 3.1:1 (2007) and 2.8:1 (2006). On the other hand, Gap Inc. has 2.2:1 (2007) and 2.7:1 (2006). Specialty retailers’ average return is greater than 3 and the general retail average is 1.0 - 1.2. Nike, Inc. at 3.1:1 (2007) has the greatest financial responsibility to pay bills over the next year timely. However, Gap Inc. also has money to meet obligations with a 2.7:1 (2006) which is......

Words: 1548 - Pages: 7

Nike Inc

...III. Statement of Situation Kimi Ford thought about investing in Nike. After reading the reports from Nike’s analyst meeting, she still was not sure whether to invest or not. Lehman Brothers determined Nike was a great investment; however, UBS Warburg and CSFB analysts disagreed. Since the reports did not help Kimi Ford out with her decision, she decided to develop her own discounted cash flow analysis. As shown in Exhibit 1, Kimi Ford projected her own discounted cash flow analysis with her assumptions. She assumed revenue would increase by 7.0% in 2002 then the percentage would start to decrease in subsequent years. To come up with the operating income, she multiplied revenue in 2001, $9,488.8 million, by the revenue growth percentage then added the growth amount to the revenue. The projected revenue for 2002 is $10,153 million. Then she multiplied cost of goods sold percentage of sales, 60.0%, and the selling and administrative percentage of sales, 28.0%, by the projected revenue of 2002. After subtracting the two amounts from the projected net income, the projected operating income for 2002 is $1,218.4 million. The net working capital equation is current assets minus current liabilities. To calculate the projected current assets and current liabilities accounts, Kimi Ford’s assumed percentages of 38.0% current assets and 11.5% current liabilities should each be multiplied by the projected revenue for 2002. When the current liabilities are subtracted from current assets...

Words: 1434 - Pages: 6

Nike, Inc.: Cost of Capital

...I. Statement of the problem Nike has new investment endeavors revamp its recent drops in net income and market share. Wall Street analyst reactions to the endeavors are mixed, with some recommending Nike as a “Strong Buy” and others recommending a “Hold.” In case 13, Nike Inc.: Cost of Capital, I am acting as a portfolio manager to estimate Nike’s cost of capital to determine whether the stock is overvalued or undervalued. II. Alternative Solutions • Dividend Growth Model (DGM) see appendix for calculations • Capital Asset Pricing Model (CAPM) see appendix for calculations • Weighted Average Cost of Capital (WACC) see appendix for calculations III. Analysis of the Alternatives • Dividend Growth Model (DGM) The Dividend growth model is a simple and easy to understand model used to estimate a company’s cost of capital. The method works because RE the return that the stockholders require to the stock, so it can be interpreted as the firms cost of equity capital. In able to use this method I used Value Line’s Forecast of Dividend Growth from ’98-00 to ’04-’06 of 5.50% for Nike as my growth (g) ( see Exhibit 4). I was able to forgo the calculation of D1 because Nike had paid a constant dividend of .48 for the past 3 years (Exhibit 5). Although the method is simple in its approach, DGM does not account explicitly for risk. There is no adjustment for the riskiness of the investment. • Capital Asset Pricing Model (CAPM) The CAPM is widely used to determine a......

Words: 1045 - Pages: 5

Outsourcing - Nike, Inc.

...outsourcing is Nike, Inc., a "corporation that is engaged in the design, development, manufacturing and worldwide marketing and selling of footwear, apparel, equipment, accessories and services" (www.reuters.com). In its earlier years of expansion, Nike acquired other businesses such as Cole Haan, Converse, Umbro and Bauer Hockey, among others. It has since then sold some of these acquisitions in an effort to refocus on its core activities. Although not an example of oursourcing, it does illustrate how important core activities are to a company. As great as diversification and acquisitions can be, they can take away focus from a company's star product, in turn affecting revenue. As part of their strategic planning, Nike probably weighed the cost benefits of outsourcing these acquisitions to others while retaining ownership, with the sale of these business lines altogether, and clearly selling was more financially beneficial for the company. But in other cases, outsourcing these business lines to others in order to concentrate on a core product or service can be the most sound strategy to employ. Even as Nike was selling off these subsidiaries in order to concentrate on its core product, they still used outsourcing in order to exercise cost reduction. Nike manufactures their shoes and apparel in other countries such as Indonesia, China, Taiwan, India, Thailand, Vietnam, Pakistan, Philippines, and Malaysia. In fact, the cost savings are so significant that Nike has stated......

Words: 824 - Pages: 4

Nike Inc Cost of Capital

...NIKE, INC.: COST OF CAPITAL The cost of capital represents the minimum return required by providers of finance for investing in an asset, it may be a project, a business or strategic unit or an entire company. It needs to represent the capital structure used to finance the investment and therefore likely to include cost of equity and debt. The cost of capital also represents a “hurdle rate” that a company’s projects must exceed in order to increase shareholders wealth and is used as a discount rate in net present value (NPV) investment appraisal techniques. Projects that generate a positive NPV at the cost of capital are accepted since they earn more than the investors required rate of return. Projects which generate a negative NPV are rejected as they earn less than their target rate of return. The cost of capital therefore plays a vital role in corporate finance, establishing a link between investment decisions and finance decisions i.e what companies should be spending their money on and how this should be funded. The weighted average cost of capital (WACC) represents the overall cost of capital for a firm, incorporating the cost of debt, equity and preference share capital, weighted according to the proportion of each source of finance within the business. In arriving at the WACC for a firm, the models used to calculate the cost of each source of finance assume that the required rate of return is a function of the shareholders’ expectations of future......

Words: 265 - Pages: 2

Nike Inc

...reviewing the financials of Nike Inc. to consider buying shares for the fund she managed, the NorthPoint Large-Cap Fund. A week before Kimi Ford began her research, Nike Inc. held an analysts’ meeting to reveal their 2001 fiscal results and for management to communicate a strategy to revitalize the company. Nike’s revenues since 1997 had ceased to grow from $9.0 billion, and net income had now fallen $220 million ($800MM - $580MM). In addition a study printed in Business Week revealed that Nike’s market share in the U.S. athletic shoe industry had fallen from 48 percent in 1997 to 42 percent in 2000. In the meeting, management planned to raise revenues by developing more athletic-shoe products in the mid-priced range, sold at $70-$90. Nike also planned to push its apparel line and exert more expense control. During the meeting, Nike’s executives expressed that the company would still continue with a long-term revenue growth target at 8-10 percent and earnings-growth targets above 15 percent. Kimi Ford decided that it was necessary to develop her own discounted-cash-flow forecast in order to arrive at a proper investment decision for her mutual fund. Her forecast proved that at a 10 percent discount rate, that Nike’s stock price was overvalued at $5.95 per share. In addition, a sensitivity analysis she created revealed that Nike stock was undervalued at discount rates less than 9.4 percent. Ford was not clear on a decision to buy Nike stock, so she asked Joanna......

Words: 1308 - Pages: 6

Nike Inc. - Cost of Capital

...cost of debt as well. The WACC takes their respective quantitative contributions to the entire amount of funding, serving hence as an allocation base, into account. As there is a direct relationship between the two portions, debt and equity, in order to calculate a proper overall price, they must be multiplied with their respective single prices. What is crucial in the calculation process is that one must not omit the tax shield effect caused by debt. Which is, due to fiscal regulations, that all interest expenses which occur in the financing process are tax deductible and, hence, reduce the overall result. This circumstance is mathematically reflected by inserting the term (1-tc). Tc here stands for the corporate tax rate, which, as in the NIKE case, needs adjustment for any taxes imposed by particular states. So if a company faces 38% corporate tax rate the remaining part of 62% count as an expense. Again, as there is a direct relationship to the proportion of the debt and its cost, the higher the tax rate the higher the tax payments and the lower the actual expenses for debt, this term is linked by multiplication to its adjacent terms. The complete WACC formula is given by the following: WACC = (1-tc) cd + ce The resulting figure from WACC is a rate which is used to valuate companies by discounting their expected future free cash flows. Moreover it can be used to assess projects. The WACC hereby serves as a minimum return a particular project must yield. If the internal......

Words: 1377 - Pages: 6

Nike, Inc.

...About Nike, Inc. First established as Blue Ribbon Sports in 1964, Nike, Inc. changed itself to current branding in the year 1971. Nike is the number one athletic footwear and sports equipment brand in the world with over $25 billion in 2013 in revenue. Based in U.S. Nike, employees 44,000 employees worldwide. In the year 2014, Nike was valued at $19 billion for the brand alone. Nike is known for its “Just do it” slogan and “Swoosh” logo. Mission: Bring inspiration and innovation to every athlete in the world. Case discussion: Foot Lockers, one of the largest retailers of Nike, Inc. has decided to reduce sales of a number of Nike’s premium shoe ranges on the fact that consumers were turning more to midpriced shoes. Based on this, a series of events occurred from cancellation of orders to reshuffling of store strategy and replacing Nike brand shoes with Reebok & FootAction. Nike fought back by changing partnership strategy with Foot Locker’s competition, from launching new products to exclusive sales right. Company culture: - Fosters a culture of innovation. They create products, services and experience for today’s athlete and solve problems for future generation - Their leadership creates opportunity and inspires others to do their best work. - They are committed to building deeper connection with the community connections and spurring positive social change around the world. - They create sustainability by innovating better solutions to create a limitless future......

Words: 846 - Pages: 4

Nike Inc.

...Nike was previously known as Blue Ribbon Sports founded in 1964 by Phill Knight and Bill Bowerman. It is the leading sporting goods Company in the United States and hundreds of other countries. This makes it the worlds number one athletic shoe and apparel seller, they have more than twenty thousand employees, with total sales of $9.5 billion. Nike and the athletic shoe industry has transformed into one of the most competitive markets in recent years. Nike does not only sell athletic shoes, but a wide variety of sporting goods and clothing. They also design, develop, and market high quality active sports apparel, equipment, and other accessory products. Their huge lines of products are for just about every sport. Their products are for men, women, and children of all ages. Nike’s mission statement is "To bring inspiration and innovation to every athlete* in the world.” In today’s competitive environment, Nike, one of the global leaders in sporting goods industry, has established a strong position for enhancing athletic life style. However, it has become the passion for everyone to use its brand products that create the Nike “Just Do It” feeling for the competition. The consumer’s perception of brand influences their buying decision in sports industry, so Nike always has been able to position to customer’s expectation and athletic fantasy that is endorsed by real athletes. Nike has continuously tried to target the world’s youth population through basketball. Nike......

Words: 1020 - Pages: 5

Nike, Inc.

...was reviewing the financials of Nike Inc. to consider buying shares for the fund she managed, the NorthPoint Large-Cap Fund. A week before Kimi Ford began her research, Nike Inc. held an analysts’ meeting to reveal their 2001 fiscal results and for management to communicate a strategy to revitalize the company. Nike’s revenues since 1997 had ceased to grow from $9.0 billion, and net income had now fallen $220 million ($800MM - $580MM). In addition a study printed in Business Week revealed that Nike’s market share in the U.S. athletic shoe industry had fallen from 48 percent in 1997 to 42 percent in 2000. In the meeting, management planned to raise revenues by developing more athletic-shoe products in the mid-priced range, sold at $70-$90. Nike also planned to push its apparel line and exert more expense control. During the meeting, Nike’s executives expressed that the company would still continue with a long-term revenue growth target at 8-10 percent and earnings-growth targets above 15 percent. Kimi Ford decided that it was necessary to develop her own discounted-cash-flow forecast in order to arrive at a proper investment decision for her mutual fund. Her forecast proved that at a 10 percent discount rate, that Nike’s stock price was overvalued at $5.95 per share. In addition, a sensitivity analysis she created revealed that Nike stock was undervalued at discount rates less than 9.4 percent. Ford was not clear on a decision to buy Nike stock, so she asked Joanna......

Words: 1345 - Pages: 6

Nike Inc

...Nike, Inc.: Cost of Capital Nike, Inc.:  Case Background:     NorthPoint Large Cap Fund weighing whether to buy Nike’s stock. Nike has experienced sales growth decline, declines in profits and market share. Nike has reveal that it would increase exposure in mid-price footwear and apparel lines. It also commits to cut down expenses. The market responded mixed signals to Nike’s changes. Kimi Ford has done a cash flow estimation, and ask her assistant, Joanna Cohen to estimate cost of capital. What is WACC? and why is it important to estimate a firm’s cost of capital?   The cost of capital is the rate of return required by a capital provider in exchange for foregoing an investment in another project or business with similar risk. Thus, it is also known as an opportunity cost. Since WACC is the minimum return required by capital providers, managers should invest only in projects that generate returns in excess of WACC. What is WACC? and why is it important to estimate a firm’s cost of capital?  The WACC is set by the investors (or markets), not by managers. Therefore, we cannot observe the true WACC, we can only estimate it. Do you agree with Joanna Cohen’s WACC estimations? Why or why not?  Issues  Single cost or Multiple Cost?  Cost of debt  Cost of equity  Weights of capital components Single cost or Multiple Cost?   Should Cohen estimate different cost of capital for footwear and apparel divisions? I agree with......

Words: 1061 - Pages: 5

Nike Inc

...Summary: Nike, Inc. is a major publicly traded clothing, footwear, sportswear, and equipment supplier based in the United States. In this case we have learned about the struggle that Nike’s one director took to catch the market of china and the reasons behind the failure of the project. Tom Clarke, the president of Nike knew that many people could not afford nike’s product due to high price and for this reason they were losing many potential customers. So in 1998 he began the development of world shoe project that was intended to emerging markets of Asia, Africa and Latin America and command Hartge to handle the project. Nike used a triple-bottom-line consideration to be able to give answers to the shareholders and people about economic, social and environmental issues. The world shoe line project was manufacturing products in china and took a business model of ‘local for local’ where local raw materials and local Nike’s manufacturing factories were used to manufacture shoes and sell them only in china. Hartge found out exclusive design for the shoes so that the manufacturing cost could be reduced. Hartge classified the market in five tier and targeted mainly tier three who were developing with high potential customers. But after doing so many things Hartge could not compete with the local producer because of their low cost and low price. Again there was no formal marketing plan to introduce the world shoe lone among retailers and customers. The distribution channel in......

Words: 1568 - Pages: 7

Corporate | THE PEDESTRIAN ASSIGNMENT - 623 Words | The Get Down