Finance
4th October 4, 2014
Nike Inc. and Callaway Golf Inc.
Executive Summary
Nike and Callaway are both an American sports manufacturing company. Nike makes many products under different sports whiles Callaway just specializes in making golf clubs and accessories. The reason for looking at these two companies is to compare their financial statements and some ratios to determine which company will be a better buy. Nike’s financial statements are impressive compared to Callaway Golf that records numerous losses on their financial statements and they also have low profitability ratios. In order to choose which company will be the better buy we have to consider all the financial statements, shares, profitability ratios, liquidity ratios, debt utilization ratios and market value of both companies.
Question 1
Nike
Price/book value ratio = stock price per share/ shareholder’s equity per share
= $11,160,000,000/897,000,000
= $12.44
Book value = $77.92/12.44 = 6.3
Earnings per Share = Net Income – preferred dividends/ average outstanding shares
= $2,460,000,000 – 0/ $458,000,000
EPS = $5.37
EBITDA per Share
Gross income / shares outstanding = $10,930,000,000/ 916,000,000 = 11.93
Gross income – taxes/ shares outstanding = 10,122,000,000/916,000,000 = 11.05
EBITDA per Share = 11.05
Callaway Golf
Book Value = $331,490,000/ 72,810,000 = 4.55
Gross income – taxes/ outstanding shares = $284,620,000/ 72,810,000 = 3.90
Book value = 8.40/3.90 = 2.2
Earnings per Share = -$18,920,000 – $3,300,000/ 36,405,000
EPS= -0.61
EBITDA per Share
Gross income – shares outstanding = $331,490,000/ 72,810,000 = 4.55
Gross income – taxes/ shares outstanding = $325,890,000/ 72,810,000 = 4.47
EBITDA per share = 4.47
Question 2
Nike has higher ratios compared to the industry averages. Nike does better compare to the industry average. This makes the company more valuable than its competitors in the industry. On the other hand, Callaway’s ratios are below industry average this is because it is a smaller company being compared to Nike. Callaway’s ratios do not mean that the company is less valuable, but the company is performing less than the industry average.
Question 3
Market Value
Nike Callaway
MV = Share price x outstanding shares MV = Share price x outstanding shares
MV= $77.92 x $888,000,000 MV = $8.40 x $ 77,350,000
MV = $69,192,960,000 MV = $649,740,000
Question 4
Nike and Callaway are both successful companies. Callaway Golf has rather limited themselves to just making golf clubs and accessories. Nike, on the other hand, make variety of products for different sports, they also good innovation and this makes them a promising company than Callaway.
Question 5
Nike is a better company looking at their profitability ratios and liquidity ratios. Callaway Golf has high percentages of debt to their assets and a negative times interest earned. The market cap for Nike is expensive but could prove to be a good purchase whiles Callaway Golf looks like the best value. The better company to buy will be Nike because they have high profitability ratio and somewhat a high debt to asset percentage but not as much compared to Callaway and the industry average.
Question 6
The final decision is to buy from Nike because their profitability ratios, liquidity ratio and debt utility ratio are most of the time better than the industry average and Callaway. Also Nike has fewer debts and losses with high profitability margins. Nike seems like the company that will perform well in the future compared to Callaway Golf.
Question 7
Nike is a large company and its market value is in billions of dollars. The market value of Nike Inc. is $69,192,960,000. This is a large amount and it will be difficult to raise that amount of money easily. The proposed bid would in the region of $65,000,000,000 because there are chances the company is overvalued. One of the ways to finance this offer is through bank loans. Nike has a proven track record of being a successful company and banks will offer loans because they know the company can pay back. Another source of financing will be investors. Investors also share similar ideas with banks; they like to invest in existing companies than new ones. Finally, personal savings and assets will be another way to finance the offer.
Works Cited
"Callaway Golf Co.." ELY Annual Income Statement. MarketWatch.com, n.d. Web. 4 Oct. 2014. <http://www.marketwatch.com/investing/stock/ely/financials>.
"How to Buy a Business." Entrepreneur. Entrepreneur, n.d. Web. 5 Oct. 2014. <http://www.entrepreneur.com/article/79638>.
"Nike Inc. Cl B." NKE Annual Balance Sheet. MarketWatch.com, n.d. Web. 5 Oct. 2014. <http://www.marketwatch.com/investing/stock/nke/financials/balance-sheet>.
