Discuss about the Financial Analysis Report of Nike Inc.
Nike Inc., is an international company that specializes in the designing, marketing, innovating, developing and selling of footwear, related accessories & equipments, apparel and such other services for the athletic purposes. It was incorporated in 1969 on 8th of September. The countries where it has its operating divisions are North America, Europe, Greater China, Japan and such other emerging counties. The brands officially sold under the company’s profile include the Nike Brand, Jordan Brand, Hurley and Converse. The company sells its branded products through the world through retail service providers or stores, internet shopping websites and with all these are included a number of independent distributors and intermediaries throughout the world (Adelaja, 2015) .
The Company recently has categorized its offers & products of NIKE brand into nine parts : Nike basketball, Soccer (football), training of Men’s training, Women’s training, the Jordan Brand, Running, Sportswear, Golf and Action Sports. The company is engaged in other kinds of products that are used for other athletic uses as well as other recreational activities such as tennis, volleyball, cricket, wrestling, lacrosse, walking and a number of other outdoor activities. In fact, the company also produces designs for kids as well. The athletic footwear produced by the company are used majorly for the athletic activities. Such products are also available in purchased for casual purposes or leisure purposes (Bierman & Smidt, 2010) .
The reports say that no company other than Nike spends so much money on the production & manufacturer of sports products. After the first post release quarter results of 2018, with 12 months sales of $34.35 billion, the world’s largest footwear and clothing company is Nike. Nike gains its 55% revenue from the international markets and the footwear brands forms 60% of its total sales. As of now, Nike has obtained the sixteenth position in Forbes’s list of the world’s most valuable brands as its brand value approximately equals to $29.6 billion. Thr market capitalization of Nike is $86.45 billion (September 2017). The quarter one results are reported on September 26 that showed a 0.1% Yoy rise equaling to $9.07 billion in sales. However, it is considered that the current quarter results of the company were the slowest growing quarter in the last seven years. The Wall Street expectations weren’t fulfilled as there was a shortage of $18 millions (Dayananda, Irons, Harrison, Herbohn, & Rowland, 2008
Recently, the Jordan brand of Nike was taken over by Adidas, who obtained a second position in the footwear market of US. The recently released reports says that Adidas is constituting 11.3% of the market share of US with respect to market share of 9.5% of Jordan Brand during the initial eight months of 2017. However, the US market was dominated by the Nike brand with a market share of 37%. Nike’s revenue in the country North America during that quarter fell 3% which is basically the first decline in sales in last four years. However, Nike still own the largest market in North America as it owns approximately 43% of its total sales (Menifield, 2014) . Even after the declining of revenue by 3% in North America, International market still showed strong connection.
Nike’s one of the key strategy is having an emotional attachment with its customers who wants to have a healthy life by selling lifestyle instilled with feelings of finding one owns greatness. The emotional benefits relates to a customer’s desire of having good vibes while jogging and feeling fresh & healthy. (Peterson & Fabozzi, 2012) .
The top three competitors of Nike are Adidas, Reebok and Under Armor. Let is discuss the reasons of such competitiveness among these brands (McLaney & Adril, 2016):
The latest news about Nike is that it had been accused of conducting misconduct in the workplace by top management (Seitz & Ellison, 2009). The president of this brand, Trevor Edwards, has resigned from the company on being accused for problems in the internal environment of working area. The CEO Mark Parker mentioned that the behavior conducted within the organization doesn’t match with the values of empowerment and dignity and respect and maintaining of a disciplined working environment (Schroeder, 2014). Nike is already struggling in the North American markets that reports negative earnings as per the last two released quarter results (Fridson & Alvarez, 2012).
To analyze the financial performance and position of a company, one of the most used tool for analyzing is Ratio Analysis. Such an analysis helps to define the performance of the financial performance in terms of activities, solvency, liquidity and profitability (Rosenfield, 2009) .
Activity ratios help in measuring a company’s day to day operations such as collection of receivables & payment of creditors & working capital management (Girard, 2014).
Liquidity ratio refers to the ability of a company to meet its short term dues and obligations (Rayman, 2009) . It measures the liquidity of the company that is how promptly the company can arrange for cash in case of payment of dues immediately (Piper, 2015).
Solvency ratios refer to the measurement of company’s ability to pay its long term debts or obligations. (Taillard, 2013).
Profitability ratio measures the percentage of profit to sales of a particular year. Higher the profits, the more beneficial are the company. (Mattessich, 2016) .
Self Analysis & Conclusion
It seems like the company is maintaining its net profit ratio throughout the five years in spite of major changes in its financial statements (Paul, 2014) . For example, the long term debts are $3471 millions which are $1478 millions more than the 2016’s holdings which mean higher interest expense in 2017 in comparison to all the previous years. However, the net profit increased in 2017 by $263 millions. Still, after all this, the company has the same net profit ratio in the two years. The company shows irregularity in case of long term debts and interest payable on it. Also, another significant observation is increase in the inventory from 2013 to 2017 with cost of goods sold amount increasing more significantly from 2016 to 2017. However, to compare it, the inventory average period has improved from 2016 to 2017.
Currently, it is expected that the investors in Nike are going to face a number of risks in the coming period starting with its steep valuation of stock (Pratt, 2009) . The products to be launched in 2018 are expected to be high dangerously. A decline is expected in Nike’s P/E multiple as per the market share in the US markets which is expected to diminish the strong customer relations in China. The accusations of misconduct in the workplace are also hitting up the markets of Nike. As per reports, Nike will have a tough time in the coming up future with or without Edward (Rayman, 2009) .
Adelaja, T. (2015). Capital Budgeting: Investment Appraisal Techniques Under Certainty. Chicago: CreateSpace Independent Publishing Platform .
Bierman, H., & Smidt, S. (2010). The Capital Budgeting Decision. Boston: Routledge.
Dayananda, D., Irons, R., Harrison, S., Herbohn, J., & Rowland, P. (2008). Capital Budgeting: Financial Appraisal of Investment Projects. Cambridge: Cambridge University Press.
Fridson, M., & Alvarez, F. (2012). Financial Statement Analysis: A Practitioner’s Guide. New York: John Wiley & Sons.
Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.
McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United Kingdom: Pearson.
Mattessich, R. (2016). Reality and accounting. [S.I.]: Routledge.
Menifield, C. E. (2014). The Basics of Public Budgeting and Financial Management: A Handbook for Academics and Practitioners. Lanham, Md.: University Press of America.
Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.
Pratt, J. (2009). Financial Reporting for Managers: A Value-Creation Perspective. Hoboken: John Wiley & Sons, Inc.
Paul, K. (2014). Managing extreme financial risk. Oxford: Academic Press, Elsevier.
Peterson, P. P., & Fabozzi, F. J. (2012). Capital Budgeting. New York, NY: Wiley.
Rayman, A. (2009). Accounting Standards: True or False? . New York (Estados Unidos): Routledge.
Rosenfield, P. (2009). Contemporary Issues in Financial Reporting: A User-Oriented Approach (Routledge New Works in Accounting History). [S.I.]: Wiley.
Rivenbark, W. C., Vogt, J., & Marlowe, J. (2009). Capital Budgeting and Finance: A Guide for Local Governments. Washington, D.C.: ICMA Press.
Seitz, N., & Ellison, M. (2009). Capital Budgeting and Long-Term Financing Decisions. New York: Thomson Learning.
Schroeder, R. G. (2014). Financial Accounting Theory and Analysis: Text and Cases. Hoboken: John Wiley & Sons.
Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.
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