Financial Analysis: Nike Inc.
General Information:
1) Corporation:
Nike Inc.
2) Home City:
Oregon, United States of America
3) Current Fiscal Year End:
4) Primary Products/Services:
Nike Inc, was founded in 1971 and today, the company is the most valuable brand in the sports industry. Nike Inc. is engaged in the primary activities relating to design, devlopment and marketing of athletic shoes and apparels.
5) High-Low Selling Prices:
6) Describe Stock Price Trend: The stock price had been in the decreasing trend since beginning of 2nd quarter, however, post the beginning of 3rd quarter, a constant walk is seen in the stock prices.
7) Describe Price Range: The stock has been in the consolidation phase through 2013, ranging from $42.55- $57.40.
Internet Information – Corporate Website:
1) Internet Address: www.nikeinc.com
2) Content of Investor Relations: Strategy – Results & Reporting – Annual Reporting
Financial Calendar – Regulatory News & Filings
Share Information – Annual General Meeting
Shareholder Information – Governance
Socially Responsible Investment – Investor Tools
Investor Relations Contacts
3) Purpose of Website: Describe Corporation – Advertise Products & Services Publicize Corporate Citizenship
Publicize Recent Corporate Events
Provide Corprate Governance Information
SEC’s EDGAR Database:
1) Date of Latest 20F: Filing Date = July 23, 2013
Period of Report =May 31, 2013
2) SIC Number: 3021-Rubber and Plastic Footwear
3) CIK Number: 0000320187
Primary Financial Statements:
Income Statement – Growth in Revenue & Profits:
1) Growth in Revenue: 12.31%
2) Revenue for Past 5 Years:
3) Reasons for Growth: Over the years, the revenue of the company has increased consistently and during the fiscal year 2012, the revenue increased by 12.31%. The company declares that continuos increase was because of every Nike brand product, contributed with increased revenues around the globe. The major contributor to increased revenue figures were the Equipment and Footwear business, with the growth of 16% and 15%, respectively. Over all the increased demand supported growth in revenues of the company.
4) Growth in Profits: Although, the revenue figure of the company improved over the year, however, high input costs, increase in demand creation expenses and higher non-operating expenses, resulted in decline in the net profit margins of the company.
Income Statement – Common Size Analysis:
1) Cost of Good Sold: COGS has been a major cause for decline in the gross profit margins of the company. The increase in revenues has been overshadowed by higher % increase in COGS. During 2010, COGS were only 53.71% of total revenue and this amount increased to 56.60% during 2012, thus having negative effect on both gross margins and net profit margins.
2) Operating Expenses: The company have reported only Selling, Administration and Distribution Expenses under Operating expenses and has successfully managed to control this cost. During 2012, the % of operating expenses to total sales has reduced from 32.08% to 30.80%
3) Debt Servicing: Interest Expenses were never a major part of the company’s expenses portion and teh same was reported only during 2012 when the company paid $4 million on debt acquired.
4) Tax Burden: Although, the tax expense increased from 2010 to 2011, however with fall in profit margins because of high input costs, the % of tax expenses to sales reduced from 3.41% to 3.08%.
5) Profitability: Both the gross and net profit margins of the company has decreased courtesy high input cost that resulted in low gross profits which fell from 45.57% to 43.39%. However, with controlled operating expenses, nike Inc. managed to record a marginal decrease in Net Profits which during a year, fell from 10.22% to 9.21%.
6) Other Items: No extraordinary or items from discontinued operations were reported.
Balance Sheet – Asset Growth:
1) Growth in Assets: 3.11% (2012)
Balance Sheet – Common Size Analysis:
1) What Changed: In comparison to previous year, although the percentage of current assets as part of total assets of the company has declined, however a marginal increase in total non-current assets has been recorded.
Cash Flow Statement:
1) Cash Flow Activity: Operating (2012): $1899
Operating (2011): $1812
Investing (2012): $514
Investing (2011): ($1021)
Financing (2012): ($2118)
Financing (2011): ($1972)
Change in Cash: $362
Beg. Cash Balance: $1955 End Cash Balance: $2317
2) Significant Cash Sources: During 2012, the majority of cash was coming from revenues and continued cash inflows from sale of short term investments. However, increase in accounts payable was another major cash contributor to cash position of the company.
3) Significant Cash Uses: Major cash outflow is related to purchase of investments and re-purchase programme of common stock.
4) Op. Cash Flow vs Net Income:
5) Greatest Differences: Although during 2010, there was a significant difference in Net Income and CFO, however, the same has reduced over the years and the difference between Net income and CFO is constant through 2011 and 2012. The major reason for the difference was depreciation and multiple changes in Working capital balances.
Statement of Changes in Stockholder’s Equity:
Shares Outstanding:
Report of the Independent Auditor:
Auditor: Price Waterhouse Coopers
Opinion: Unqualified
Financial Statements: Responsible for making sure they are “free of material misstatements”.
Guidelines: It appears that guidelines of US GAAP were undertaken.
Belief in Fairness: The auditor believes that the company’s and its subsidiary’s financial statement are made in a fair manner.
Report on Internal Controls:
Authority of Criteria: Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).
Responsibility: Ensure reliability for external reporting.
Auditor’s Belief: There is limitations in internal controls in preventing misstatements and
Ratio Analysis:
Analysis of Profitability:
1) Profit Margin: Current (2012): 9.2%
Past (2011): 10.2%
2) Return on Assets: Current (2012): 14.65%
Past (2011): 14.5%
3) Return on Equity: Current (2012): 22%
Past (2011): 21.8%
ROA & ROE Changes: There has been a marginal increase in ROE and ROA multiples.
Comments on Profitability: As already discussed in the previous sections, despite of increase in revenue of the company the net profit margins of the company has decreased during the year. However, a very marginal increase in ROE and ROA was witnessed.
4) Earnings Per Share: Current (2011): $4.83
Past (2010): $4.48
Past (2009): $3.93
Changes in EPS: The increase in EPS have been the result of decline in shares outstanding over the years as there has not been increase in Net Income of the company during these years
5) Cash Dividends Per Share: Current (2012): $1.32
Past (2010): $1.14
Past (2009): $1.02
6) Dividend Payout Ratio: Current (2012): 27.8%
Past (2011): 26.0%
7) Price/Earnings (P/E) Ratio: Current (2012): 10.7
Past (2010): 10.8
Analysis of Liquidity:
1) Current Ratio: Current (2012): 2.92
Past (2011): 2.85
Comments on Current Ratio: The Current Ratio of the company has improved from 2.85 to 2.92, which indicates that liquidity roots of the company has turned strong.
Net Working Capital: Current (2012): $7595 Million
2) Quick Ratio: Current (2012): 1.94
Past (2011): 1.82
Comments on Quick Ratio: Although the current ratio of the company has increased, however, the Quick Ratio has declined which indicates that inventory and prepaid expenses are major part of total current assets of the company and this might worry the short term creditors of the company.
Analysis of Solvency:
1) Debt to Total Assets: Current (2012): 0.33
Past (2011): 0.34
Changes in Debt to Total Assets: There has been a marginal decline in the Debt to Total Assets of the company.
Preference of Lenders: Lenders would prefer a smaller ratio, because there is potentially more collateral for a company to put up if they are unable to pay off its debt.
2) Times Interest Earned (Accrual): Current (2011): 995
Past (2010): 712
Times Interest Earned (Cash): Current (2011): 66
Past (2010): 57
Competitor Analysis:
Favorability Comparison: Referring to the above comparison, it can be easily inferred that Nike Inc is well ahead than its competitors in all sections i.e, of Profitability, Solvency, Liquidity etc. Moreover, where Nike Inc. has sustainable dividend payout ratio, its competitor is not paying any dividend. Hence, where Nike Inc. has high chances of growth, Deckor seem to loose on all major sections.
Making Decisions Based on the 20-f:
1) Revenue Performance: Nike’s Revenues are steady and increasing, but the increase in Cost of Sales has been a cause of concern for the company
2) Greatest Influence on Revenue: Custom Duties an Demand Creation Expenses has greatest influence on Revenue.
3) Income Performance: Net Income of the company has been declining since an year now but with controlled operating costs, it seems that the company will be able to maintain stability in its income.
4) Total Asset Growth Rate: Continually increasing.
5) Three Strengths: First, The Nike Brand itself is the strength of the company and is being widely accepted around the globe. Second, no close substitute with such a big maket share is another factor in favor of Nike Inc. Market Capitalization of makes it the biggest sports company in the world. Third Nike’s product is in constant demand.
6) Personal Opinion: I am optimistic about Nike Inc. Although the major concern seems to be increasing cost of sales, however, the brand name of Nike Inc and growing revenue makes me optimistic about the performance of the company..
7) Stock Purchase: I would recommend stock purchase of Nike Inc considering strong fundamentals and potential to grow both in revenu and profits becuase of its strong brand power.
