The selected company for this assignment is Nike Inc headquartered in the US. The company is in the Footwear and Accessories industry. According to Yahoo Finance, the company employs 73,100 full-time employees. The company sells its products to independent distributors, stores, shops, and retail outlets. According to the financial statements published on 05/31/2018, the net income was $1,933,000,000 which is lower than the previous two years when it was $4,240,000,000 and $3,760,000,000 respectively (NIKE, Inc, 2018) . The figure was 45% of the previous year’s net income indicating that there was a significant drop in the net income.
A change in the net income of the company has significant negative impacts on investors. The return on investment and return on investment, for example, will be adversely affected and the amount applicable to the common shareholders will also be affected. Investors will, therefore, be on a worse financial position if the net income continues declining over the years. However, an increase in the net income of the company implies that the shareholders have higher returns for their investment thus motivating them to continue supporting the business of the company.
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The ending balance for the shareholders' equity for Nike according to the financial statements was $9,812,000,000. The figure was slightly lower than the previous year’s $12,258,000,000. Shareholders’ equity shows how the interest of the owners in the company has changed over time. it indicates the net worth of the company’s owners and the different proportions held by all the shareholders. It shows how much was initially contributed and paid-in capital (Subramanyam, 2014). Similarly, higher shareholders equity indicates that the company has reported high profits in the form of retained earnings.
Trade unions are interested in a company with high shareholders equity since they are confident that the company can easily grow and be able to meet the demands of its employees. Such growth can be enhanced by reinvesting to enhance the expansion of the business or to strengthen the infrastructure to increase productivity. Trade unions are therefore interested in employers who show signs of growth and expansion which is good for the employees.
The total value of the asset for the year ended May 2018 was $22.536 billion slightly lower than the previous year when the total assets were $23.259 billion. The financial statement indicates that the total assets of the company declined by 3.3%. However, the total assets for 2016 and 2015 were lower than for 2018. The high asset value for 2017 can be attributed to short term investments reported in 2017. Even though the total assets were slightly lower, the decline was small and the effects are minimal since assets like property plant and equipment increased in 2018 which is good for the company as long as it can generate high sales revenues thus contribute to optimal utilization of the company (Subramanyam, 2014). Nike should, however, analyze its return on assets to ensure that it does not over capitalize its operations.
The total value of the company’s assets has significant relevance to the creditors who are interested in knowing that the company will be able to honor its obligations. Creditors are risk averse and would avoid a company whose total assets are low. Any creditor will, therefore, determine the value of the assets that the company has before they can grant any credit. Such assurance gives them confidence that they can recover their funds in the event that the company is unable to repay them. high total assets, therefore, give the company a high chance of negotiating for better credit terms and the creditors are unlikely to limit the credit that they can grant (Subramanyam, 2014). Creditors can even offer additional credit since they are confident that the company can generate high returns from its assets and therefore repay the creditors on time.
References
NIKE, Inc. - Investor Relations - Investors - News, Events, and Reports. (2019). Retrieved from https://investors.nike.com/investors/news-events-and-reports/?toggle=earnings
Subramanyam, K. (2014). Financial statement analysis . New York, NY: McGraw-Hill.
Yahoo Finance. (2018). Nike Inc. Retrieved from https://finance.yahoo.com/quote/NKE/analysis?p=NKE
