Finance
About the report
The report is commissioned to propose a sales pitch for Nike Inc. to a group of investors who are looking for a company that is poised for growth on a fundamental basis and suits the long-term investment horizon. The recommendation will be based solely on the company’s financial and recommendation of the market analyst about the company.
About the company
Founded in the year 1964 as Blue Ribbon Sports Inc., Nike Inc. design,develop and market sports apparel and athletic footwear. The company leads the industry with sales volume above $30 billion and market share at 21.6%, followed by German counterpart, Adidas, which holds 9% of the total market share. (Profile: Nike Inc, 2016)
Trends in income statement
-Strong Sales growth:
Over the year time, the revenue figures of the company have increased by 10.07%. The increase here is purely attributed to the growing inkling of the global citizens towards a healthy lifestyle. According to a report released by Morgan Stanley, the market for athletic footwear and sports apparel industry is expected to surge to $450 billion by 2020, and Nike Inc. being the industry leader will benefit the most. (Morgan Stanley, 2016)
-Controlled Cost Structure
Nike Inc. has also achieved efficiency in the cost structure with the proportion of the cost of goods sold and operating expenses, increasing in a controlled manner compared to 10.07% increase in the revenue figures. Important to note,during 2015,the proportion of COGS to the revenue figures decreased from 55.22% to 54.10%, while the proportion of operating expenses to the revenue figures remained fairly constant at 34%. (Income Statement: Nike Inc, 2016)
This shows that the company is able to generate higher sales without making any addition to its existing cost structure.
-Strong growth in operating and net profitability
Courtesy the sustainable growth in the revenue figures and controlled cost structure, Nike Inc. witnessed strong growth in profitability figures. Important to note, during 2015, the operating profit and net profit of the company surged by 13.45% and 21.53% , respectively. (Balance Sheet: Nike Inc, 2016)
Trends in Balance Sheet
-Strong cash position
Referring to the balance sheet of the company we found that the net cash and cash equivalent position increased by 15.21%, while the core cash reserve surged by 73.51% and got succumbed following -29.09% decrease in the short-term investment. However, even a 15.21% increase in the cash reserve is a highly optimistic trend and signals towards a strong liquidity position of the company. (Balance Sheet: Nike Inc, 2016)
-Focus on reducing leverage amount
As for liabilities,during 2015, Nike Inc. recorded a 10% reduction in long-term debt outstanding. This signals towards the preference of the company to operate under a low leverage capital structure (Balance Sheet: Nike Inc, 2016)
-Sustainable growth in equity
During 2015, the equity portion of the company increased by 17.40%. The most notable items in the equity section were the other comprehensive income, which surged from $85 million to $1246 million.
Trends in Cash Flow Statement:
-Cash flow from operations
The CFO section of the cash flow statement confirms the strong financial position of the company. During 2015, the CFO amount increased by 55.3% and since the amount of CFO is higher than the net income figure, this signals towards the practice of sustainable accounting in the company. (Cash Flow Statement: Nike Inc, 2016)
-Cash Flow from Investing activities
This section of the cash flow statement provides information relating to the capital expenditure and receipts of the company. Referring to the investing cash flow section we found that during the year, the company maintained a sustainable mix of capital expenditure and investment with an amount of $963 million spent on purchase of property, plant and equipment and $4936 million spent on the purchase of short-term investments.(SEC 10K, pg 49)
-Cash flow from financing activities
This section of the cash flow statement revealed more optimistic trends in the financial position of the company. To begin with, during 2015, the company retired 10% of its existing debt outstanding and used operating cash flow to repurchase stock worth $2534 million and to make the dividend payment of $899 million. It is considerable that for an entity that is retiring long term debt and is spending the operating cash flow on the stock repurchase activity and dividend payment, this clearly indicates high optimism amongst the management for the future growth of the company (SEC 10K, pg 49)
Analyst Opinion
In order to have a firm opinion on the stock, we also referred to opinion of the market analysts following the stock and found that the analyst community is highly optimistic relating to the future potential of the stock. Below we have highlighted the recommendation trends for Nike Inc:
Conclusion: Strong Buy
Considering the recent trend in the financial figures of Nike Inc. we do recommend the stock to our investors with the rating of ‘Strong Buy’. However, the stock will show its real potential in the long-term only and we do not recommend this stock to our short-term investors.
References
Analyst Opinion: Nike. (n.d.). Retrieved June 27, 2016, from Yahoo Finance: https://in.finance.yahoo.com/q/ao?s=NKE
Balance Sheet: Nike Inc. (n.d.). Retrieved June 27, 2016, from Morningstar: http://financials.morningstar.com/balance-sheet/bs.html?t=NKE®ion=usa&culture=en-US
Cash Flow Statement: Nike Inc. (n.d.). Retrieved June 27, 2016, from Morningstar: http://financials.morningstar.com/cash-flow/cf.html?t=NKE®ion=usa&culture=en-US
Morgan Stanley. (2015). Athletic Lifestyles Keep Apparel Sales Healthy. Retrieved June 27, 2016, from http://www.morganstanley.com/ideas/global-athletic-wear-geared-for-growth
Profile: Nike Inc. (n.d.). Retrieved June 27, 2016, from Yahoo Finance: https://in.finance.yahoo.com/q/pr?s=NKE
Statista. (n.d.). Forecast of Nike's global market share in athletic footwear from 2011 to 2020. Retrieved June 27, 2016, from Statista: http://www.statista.com/statistics/216821/forecast-for-nikes-global-market-share-in-athletic-footwear-until-2017/
