Nike Incorporation Financial Analysis Free Essay Example

Introduction

Nike Inc. (Nike) incorporated in 1968, Oregon, is world’s biggest retailer of athletic footwear and apparel. The company operates through retail accounts, owned-stores, ecommerce sites, and various outlets in various parts of the world. The company owns several brands and trademarks which include NIKE, Hurley among other brands. By the end of the fiscal year 2014, the company had 322 direct-to-consumer retail stores in the USA and 536 stores in the non-USA market. In the fiscal year ending 2014, Nike reported revenues of USD 27.8 billion, operating income of USD 3.7 billion, net income of USD 2.7 billion. During the same year, Nike generated operating cash flow of USD 3.0 billion, free cash flow of USD 2.1 billion and spends USD 880 million on capital expenditure ("NIKE, Inc. reports fiscal 2013 third quarter results," 2014.). Through this note, the researcher has attempted to analyze Nike on few critical financial parameters.

Revenue analysis

As discussed above, Nike earned its revenues by selling athletic footwear and apparel under various brands including its flagship brand Nike. The company sells its products in the USA and other international markets all across the world. As shown in Chart 1 in the appendix, in 2014, the company revenues at USD 27.8 billion grew by 10% over fiscal 2013 driven by growing revenues for both brands NIKE and Converse. Every region, for brand NIKE, delivers growth in revenues over 2013. N. America contributed four percentage points increase in overall revenues, while W. Europe and upcoming Markets each add two percentage points each, and Central and Eastern Europe each add one percentage point ("NIKE, Inc. reports fiscal 2013 third quarter results," 2013.).

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Similarly, chart one also shows that revenues for fiscal 2013 at USD 25.3 billion grew by 9% over fiscal 2012, driven growth in revenues for both brands NIKE and Converse ("NKE Income Statement," 2013.). In 2013 as well, every region, for brand NIKE, delivers revenue growth. North America add six percentage points to overall revenue growth, upcoming Markets contributed two percentage points, and Central and Eastern Europe and add one percentage point each. China decreased the revenue growth by one percentage point.

Debt to Equity ratio

Debt-to-Equity ratio (D/E ratio) is calculated as Total Debt / Shareholders’ Equity. The ratio shows the ratio of debt to equity being used to finance firm’s growth (Cordis, 2014, p. 1152). As shown in chart 2, D/E ratio of Nike in 2014 was 0.11 which though was same when compared to 2013 at 0.11 times but has increased over 2012 at 0.02 times. However, the ratio is still less than one which indicates that the company is generating sufficient cash flows to finance its future growth and hence is less dependent on external borrowings.

Earnings per share analysis

The earnings per share (EPS) are the most important factor for measuring growth in equity shareholders’ wealth. Higher the growth in EPS, higher will be the market capitalization of the shares. EPS is calculated as Net Income / Outstanding Equity Shares (Jadhav et al., 2015, p. 106). Chart 3 in the Appendix shows that EPS of Nike during fiscal 2012 to 2014 grew considerably from USD 1.18 to USD 1.49 respectively increasing of 26% over two years or a CAGR of 12% over the same period. While the growth in EPS was at 15% in 2013 over 2012, the same grew at 10% in 2014. This growth shows an increasing trend but at with reducing pace in growth.

Return on equity analysis

The return on equity (ROE) measures the rate of return earned on the investment made by the equity shareholders. Growth in EPS is directly related to growth in ROE. Higher the increase in EPS, higher is the value of ROE. Return on equity is computed as Net Income / Shareholders Equity (Coates & Coates, 2015., p. 117). As per Chart 4 in the appendix, ROE of Nike grew from 22% 2012 to 23% in 2013 and further increase to 25% in 2014 which is partly driven by an increase in Net Income and partly driven by a decline in outstanding equity stock owing to share buyback program.

Current ratio analysis

The current ratio measures liquidity position of the firm. It measures firm’s capability to meet its near-term (over next one year) obligation using its near-term asset liquid assets (debtors, inventory, and cash). The current ratio of more than 1.0 showcases firm’s healthy position to meet its current term obligations (Bowlin, 2015, p. 67). It is measured as the ratio of current assets to current liabilities. As per Chart 5, the current ratio of Nike was at 3.0 times in 2012, showcasing healthy liquidity position of the company. The same increased to 3.5 times in 2013, further adding to strong liquidity position but the same declined to 2.7 times in 2014.

Main competitors

The athletic industry is very competitive in case of footwear, apparel and equipment products. NIKE faces intense competition from global brands like Puma, Under Armour, Adidas, V.F.Corp, and Li Ning ("Nike, Inc. Competitors," 2018.). Besides, the company also faces stiff competition from regional brands especially on price points across all markets of their operations.

Appendix

Chart 1  NIKE’s Revenues