Company overview
The Nike Inc. is a transnational company with its headquarters in Beaverton, Oregon in the United States of America. Although it first began in 1964 as Blue Ribbon Sports, the company changed its name to Nike and became a corporate in 1968 in compliance with the Oregon state laws. As a global company, Nike’s overall business undertakings involve developing, designing and marketing its line of products such as accessories, sport equipment and footwear. Currently, Nike ranks as the biggest manufacturer and seller of athletic kits, gear and footwear globally (Nike, 2017). Its logo and trademarks have gained significant worldwide recognition due to being associated with high quality products. The company epitomizes the essence of brand marketing through progressively revolutionizing its approaches in the world of sports. Furthermore, it explores and invests in all sport-related areas such as promotion and management of athletes, retail marketing and leaping forward in embracing technological advancements in sports.
Nike operates in a market that is extremely consumer-focused. As a result, the demand and sale of Nike products heavily relies on the popularity of diverse athletic and fitness activities. With this in mind, the executives ensure the dynamism of their products and suiting them to align with the demands of various athletic activities. The company takes vigilant steps in the management of its commercial ventures as depicted through the aggressive styles of marketing and continuous product improvement.
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Notably, the name Nike comes from the Greek mythology and refers to the goddess of victory. The founders of Nike Inc. Bill Bowerman and Phil Knight envisioned a company that would triumph in its ventures. This drive has been core in steering the company forwards through relentless efforts towards maintaining its position as a global leader in sports and athletic apparel (Nike, 2017). As a result, the company has experienced tremendous success. As of 2017, the company’s revenue stood at $34 billion with a net income of $4 billion. The company remarkably stands at par with other multinational companies such as Sony and McDonalds. With its aggressiveness, the company has managed to outpace its closest competitors.
A look back in history shows that the stock prices of the company have been on a soaring trend. In fact, for the fiscal years of 1994 to 1997, the value of Nike’s stock appreciated to almost fourfold. Investing in the company’s stocks has proven lucrative for stock traders. As such, it is necessary to examine the reasons behind the remarkable success. One of the reasons is focusing on emerging trends in the sports world. They took advantage of the sharply growing adoration of top sportspersons and the rapidly increasing interest in sports, equally as a participatory and viewing activity. Furthermore, the rising preoccupation with health and physical activity as well as the significance of sports among adolescents and young adults provided another market gap.
Product lines of sales
Currently, Nike’s products have infiltrated over 20,000 retail outlets in the United States. The company permits the sale of its products by independent distributors, through licensed retailers and subsidiary outlets in over one hundred nations of the world. In ensuring rapid distribution, most of the footwear is developed outside the United States (Pandey, 2017). Different countries produce different percentages where Thailand produces 11%, China 40%, Vietnam 12%, while Indonesia produces 30% of all footwear. On the other hand, the production of apparels takes place both in the US and in overseas countries such as Thailand, Taiwan, Singapore, Mexico, Malaysia, Indonesia, China, and the Philippines among others.
The footwear products developed by Nike are designed mainly for particular sport use, where various designs are tailored for different sporting activities. Among the top retailing categories of sports include basketball, cross-training and athletic races. Other categories include football, tennis, volley ball, golf, bicycling, wrestling, auto racing and other sporting and non-sporting events (Pandey, 2017). Furthermore, a considerable proportion of Nike’s footwear customers wear it for leisure or casual purposes. Regarding apparels, Nike sells various designs covering each of the aforementioned categories as well as accessory items and athletic bags. The company has a line of equipment under the brand name Nike such as bats, timepieces, sport balls, and skates among others. It also owns a line of clothing, accessories and casual footwear under the Cole Haan brand. Nike has a subsidiary company by the name Nike Bauer Inc. which has its headquarters in Montreal. It produces and distributes skate blades, ice skates, roller skates and similar products.
From a financial point of view, the company’s overall sales comprise of the different products in its line of operation. Specifically, footwear makes up 59% of overall sales while apparel make up 33%. Equipment and accessories make up 2% while other products and brands make 5%. From a regional point of view, the majority of Nike’s sales take place in the US as indicated by 57%. Europe takes 26%, Asia 10%, while the Americas make 7% of all sales.
Financial highlights .
For the fiscal year 2017, sales involving the Nike brand and Converse in the United States made up roughly 46% of overall revenues, in comparison to 47% and 46% for the fiscal years 2016 and 2015 respectively. The Nike Brand and other products in its line of operation such as Converse products sold in thousands of retail outlets in the United States (Nike, 2017). This included a combination of sporting goods stores, footwear stores, sporty domain stores, departmental stores, skate, tennis and golf shops and other retail outlets. During the fiscal year 2017, the top three largest customers accounted for around 23% of overall sales. In the United States, the Nike sales offices were utilized to solicit the high sales indicated.
Horizontal analysis of income
Horizontal analysis looks into the company’s trends of performance based on the financial statements across multiple time periods, using as stated base period. Thus, it enables an investor to see the company’s performance over different time periods to inform their decisions (Wainwright, 2012). Nike’s performance has been on a soaring trend as indicated in the financial statements for the past three years. In 2015, the company’s revenue stood at $30.6 billion with retained earnings of $20.3 billion. In 2016, the revenue rose to $32.3 billion while the retained earnings stood at $ 20.5 billion. This was a 6.2% increase in revenue with a corresponding 1.5% increase in retained earnings. As for the last year, 2017, the revenue increased to $34.3 billion with retained earnings increasing to $23.6 billion. This indicated a 13% increase in revenue and a 2.7% increase in retained earnings. From these statistics, it is clear that Nike is progressively registering positive growth annually.
Furthermore, the company registered a gross profit of $14.06 billion in 2015. The gross margin stood at 46% while the net income stood at $3.2billion. Basic earnings per common share were 1.9%. Ultimately, the return on equity was 27.8%. In 2015, the gross profit increased to $14.9 billion, the gross margin rose to 46.2%, the net income was $3.7 billion while the return on equity was 30.1%. As for the fiscal year 2017, the gross profit increased to $15.3 billion, the gross margin declined to 44.6%, the net income increased to $4.2 billion while the return on equity was 34.1%. Again, an upward trend is evident from the statistics.
Ratio analysis
Current ratio
It is important to conduct ratio analysis and interpretation as it is important in informing investment decisions. One of the financial ratios is the current ratio which is obtained by dividing current assets by current liabilities.
|
May 31, 2017 |
May 31, 2016 |
|
| Financial Data (USD $ in millions) | ||
| Current assets |
16,061 |
15,025 |
| Current liabilities |
5,474 |
5,358 |
| Ratio | ||
| Current ratio |
2.93 |
2.80 |
In the interpretation of the current ratio, a higher ratio is preferred as it shows that the company is able to pay its short-term liabilities (Wainwright, 2012). As such, Nike’s current ratio indicates a strong financial position as noted in the improvements from 2016 to 2017.
Quick ratio
The quick ratio evaluates the company’s ability to pay its current liabilities using the quick assets only. Nike’s quick ratio calculation is as follows:
|
May 31, 2017 |
May 31, 2016 |
|
| Financial Data (USD $ in millions) | ||
| Cash and equivalents |
3,808 |
3,138 |
| Short-term investments |
2,371 |
2,319 |
| Accounts receivable, net |
3,677 |
3,241 |
| Total quick assets |
9,856 |
8,698 |
| Current liabilities |
5,474 |
5,358 |
| Ratio | ||
| Quick ratio |
1.80 |
1.62 |
Nike’s quick ratio indicates a strong financial position as noted in the improvements from 2016 to 2017. The company appears to be well equipped to pay off all current liabilities as the quick assets level is way above the level of current liabilities.
Cash to Current liabilities ratio
The cash ratio measures a company’s liquidity and its ability to pay short term liabilities. In case a company is about to go out of business, this ration informs the creditors as to the extent to which the current assets could be turned into cash.
|
May 31, 2017 |
May 31, 2016 |
|
| Selected Financial Data (USD $ in millions) | ||
| Cash and equivalents |
3,808 |
3,138 |
| Short-term investments |
2,371 |
2,319 |
| Total cash assets |
6,179 |
5,457 |
| Current liabilities |
5,474 |
5,358 |
| Ratio | ||
| Cash ratio |
1.13 |
1.02 |
From this analysis, the company has an improvement in its cash ratio, hence a strong financial base to pay off creditors using current assets.
Recommendation
Nike is experiencing a constant improvement in its revenues. Furthermore, the company is progressively engaging in new ventures and innovations to enhance its market coverage. Its iconic trademarks have gained global recognition, and the management expresses their determination to uphold and augment the company’s image and reputation. With their dedication to product revolution and excellence as well as progressive investment in design, the company seeks to maintain the upward trend. Although marketing efforts may fallen short of the desired impact on the brand image, aggressive promotions and advertisements will lead to significant gains in the company’s revenue. What is more is that Nike’s financial reports indicate a strong and unwavering financial base. As such, investing in the company offers promising returns to the investor.
References
Nike, Inc. (2017). Annual Report on Form 10-K.
Pandey, B. C. (2017). Nike Inc.-Complete Analysis: SWOT, PESTLE and Marketing strategy .
Wainwright, S. K. (Ed.). (2012). Principles of Accounting: Volume I [Electronic version]. Retrieved from https://content.ashford.edu/
