Nike Financial Analysis
Investing in a company has certainly changed over the years. Financial information is literally at one?s fingertips via the internet. In today?s fast paced corporate environment companies are under tremendous scrutiny to maintain their edge. The company I am evaluating is NIKE. This Financial analysis will consist of the following: Ratios from the Income Statement, Statement of Owner?s Equity, and Balance Sheet. This information is designed to assist a potential investor. Nike?s mission is complex. Listed below is a copy of Nike?s company philosophy.
Company Philosophy:
WE ARE ABOUT DREAMS. Nike was, is, and will always be a company driven by certain key philosophies. What are they? First and foremost, we are a company dedicated to innovation and the passion to create great product. From Bowerman's Waffle Trainer to the Tour Accuracy golf ball, we make every effort to take consumers where they want to go before they realize they want to go there.
WE ARE ABOUT THE CONSUMER. The consumer rules the roost. They make the important decisions. I answer to them, as we all do. The opinions of Wall Street analysts and media pundits are really just derivatives of our relationship with our consumers. When the young at heart seek out our products, when they respond to our messages and believe in what we stand for, when our relationship with consumers is healthy, that's when we grow. Even so, gaining true understanding of our consumers, and thereby being able to deliver meaningful innovation to them, is a huge challenge. It's not the demographics that change; it's the deliverables. Ours is a constantly moving target. Technology continues to increase the pace and volume of options in all of our lives.
WE ARE ABOUT IRREVERENCE. We are about irreverence. The great thing about Nike is that we have the ability to laugh at ourselves, to ind the humor in what we are doing, to compete aggressively but also to have fun. It shows in our best advertising, from Mars Blackmon to Andre Agassi. Irreverence has always been a core part of our culture. It is, for us, the balance between our attempt at greatness and the risk of arrogance. We mix confidence and strength with the humility to look at ourselves in the mirror and say, we can do better.
WE ARE ABOUT WINNING AND COMPETING HARD. We invent markets and new ways to compete. We have withstood every challenge that has come our way. Winning starts with taking care of business at home and then looking for new challenges. We are doing both.
WE ARE ABOUT CHANGE. Over the past twenty-five years we have had to reinvent ourselves many times. The first surge was with the Waffle Trainer and the running craze.
When that slowed, we thought we ran out of market. We had another surge with basketball behind Michael Jordan, and cross-training with Bo Jackson. Then again, we
Thought our growth was dead. Another surge came in 1995, when Nike became fashionable and athletic urban wear became king. But,that too ended in early 1998, as did the health of the Asian economy. There we were, with an over-extended brand. Each time we reinvented our company. In 1995, when we reached $3 billion in sales, we said $5 billion was the absolute limit. Three years later we were closing in on $10 billion. Each time we did succeed it was due, in part, to our fear of failure, which drove us harder and faster. Each time, however, it has gotten harder. We have covered more of the market, and now the targets seem smaller and more numerous. We have stretched our Nike brand quite far. Some say too far. Others say it still has more reach to go. What is clear to me now is that the market has changed. We have new competitors and, as before, we need to adjust. We need to expand our connection to new categories and toward new consumers.
WE ARE ABOUT SOCIAL RESPONSIBILITY. You have all read the press and seen the media regarding Nike's labor practices. The reality is, we have set the highest standards of conduct and practices in the industry. We have the responsibility to let the rest of the world see this and know it as well. That's why we are releasing a full corporate responsibility report this fall. It's a strong beginning. Where we are going. My aspirations for Nike are simple: I want Nike to be the best company it can be. I want it built to last. It must sustain beyond any team or any individual, including. Especially me. I won't say achieving these aspirations will be easy. But, they are the right ones for a company with our position, our brand reputation, our industry, our influence, and our capabilities. I believe we have the potential to do it. We've done it before; we can do it again. It won't be easy. There are a million reasons why we won't succeed. There will be challenges and road bumps along the way. Some will lose confidence. The Street and the media will be licking their chops. And the stock will fall, and the stock will rise. We have to be prudent and manage a tight ship. But, if the time comes to choose between managing our short-term earnings and creating long-term success, I choose the latter. If that means taking another hit with the stock, then I'm willing to live with that. If we are to succeed, one universal truth is clear: We need to go through a re-commitment process. It's one I've had to go through over the past year, and I can tell you, it's not easy. We are building the leadership team that will help Nike succeed in the long term. We will be honest with you and work through our challenges. We will have bad times. But then we will have better times and, soon, great times. We can do this. We will do this. One last constant thought: As we step into the future, there is an important piece of the past that we take with us. It is the memory of a singular man who passed away in his sleep on Christmas Eve. Strategically eccentric. A natural motivator. Complete in his understanding of sports and the athlete. Tireless in his pursuit of innovation. That man is Bill Bowerman. And while no reference can give justice to his contribution or adequately express his spirit, we will always try to be that which would make him proud.
Philip H. Knight
Chairman of the board
And CEO
Nike Financial Ratios
1999
(In Millions)
Current Ratio = current assets/current liabilities = 5,247.7 divided by 1,4469.9 = 3.626
In most industries, according to the textbook, 2.0 is considered a good ratio.
Acid Test Ratio = cash short term investments current receivable/ total current
Liabilities = 198.1 1,540.1 65.4 73.2 = 1.297
Nike?s ability to pay all of their current liabilities, if they all came due immediately, is strong. According to most financial publications, an acid test of .90 to 1.00 is acceptable in most industries.
Debt Ratio = total liabilities/ total assets = 1913.1 divided by 5247.7 = .364
Most company?s debt ratios range around .57 - .67. Nike?s .36 debt ratio indicates a low risk debt position.
Times-Interest-Earned Ratio = income from operations/ interest expense = 790.2
divided by 44.1 = 17.9
The norm of U.S. businesses in this ratio falls in the range of 2.0 to 3.0 for most companies. This ratio of 17.9 means that Nike as a company can cover their interest expense almost eighteen times with their operating income. This figure in a word ?Outstanding.
Rate of Return on Sales = net income/ net sales = 451.4 divided by 8,776.9 = .0514
This ratio shows that Nike earns five cents for every dollar in sales.
Rate of Return on Assets = net income interest expense/ average total assets = 451.4
44.1 divided by 5,247.7 = .094 (1997 total assets not listed)
This ratio measures how profitably a company uses its assets. This is simply another tool to measure a company?s profitability. The rate of return on assets varies largely from industry to industry.
Rate of Return on Common Stockholders Equity = net income preferred dividends/
avg common stockholders? equity
451.4 divided by 3298.1 = .136
This rate of return again is a measuring stick of profitability. Nike?s 13.6% rate of return on stockholder?s equity would be considered strong in most industries.
Earnings per share of Common Stock = 1.59
This ratio must appear on the face of a company?s income statement. Nike (EPS) is up from 1.35 in 1998. This is another sign of a strong company, although it is not uncommon for a company to have a down year.
These ratios show the following:
?Nike has a very good ability to pay current liabilities. This was evident in the current ratio and the acid test.
?Nike has an excellent ability to pay short term and long-term debt. This was proven in the debt ratio and times-interest-earned ratio.
?Nike is a solid company in 1999, from a profitability stand point. This was apparent in the Rates of return on sales, assets, and common stockholder equity.
I would recommend Nike to a potential investor because of the reasons listed above, in this analysis. I would also recommend a thorough analysis of the Industry by researching at least tow of Nike?s closest competitors.
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