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CONTENTS 1. Introduction 1.1 Company Background 1.2 Recent Developments 2. Ratio Calculations & Interpretation. 2.1 Profitability 2.2 Financial Stability 3. Price/ Earnings Ratio & Investment Recommendation 4. Appendix 4.1 Profit & Loss Statement for Nike i. 2011 Annual Profit & Loss Statement ii. 2012 Annual Profit & Loss Statement 4.2 Balance Sheet for Nike i. 2011 Annual Balance Sheet ii. 2012 Annual Balance Sheet
5. References
In the 21st century, Nike is known as one of the most powerful companies worldwide. (Carbasho T., 2010) They specialize in making footwear, apparels and equipment. (Nikebiz, 2013) Nike was founded in 1972. (Lussier N.R, 2008) Phil Knight started by importing track shoes from Japan and would sell them off from his car boot and by the 1980s, Phil Knight had established Nike, and the company had already begun designing and making their own running shoes. (Lussier N.R, 2008) Nike was showered with popularity, thanks to their successful launch of Nike Air technology in the Tailwind running shoe in 1979. (NikeInc, 2011) By the end of 1980, Nike had become a public traded company. (NikeInc, 2011) Nike has made an announcement on the 9th of January 2013, that they have new plans of developing a new headquarters for Nikes employees in Shanghai, China. (NikeInc, 2011)
Profitability Ratio Analysis for the years 2011- 2012 Profitability Ratio 2011 2012 Interpretation
Return (ROE)
on
Equity 21.8%
22.0%
During the period of 2011 and 2012, the ROE has increased from 21.8% to 22.0%. This means that Nike Company is getting more returns on the capital. During the period of 2011 and 2012, the NPM has decreased from 10.2% to 9.2%. This means that the companys ability to control the overall expenses is getting worse. During the period of 2011 to 2012, the GPM has decreased from 45.5% to 43.3%.This means that the companys ability to control the Cost Of Goods Sold (COGS) is getting worse. During the year of 2011 and 2012, the SER has decreased from 16.0% to 15.3%. This shows that the companys ability to control the selling expenses is getting better. During the year of 2011 and 2012, the GER has decreased from 16.0% to 15.3%. This shows that the companys ability to control the general expenses is getting better. During the year of 2011 and 2012, the FER has decreased from 0.019% to 0.012%. This shows that the companys ability to control the financial expenses is getting better.
Margin 10.2%
9.2%
43.3%
15.3%
15.3%
0.012%
2011
2012
{2223 [(10381 + 99843) / 2] 100% = 2223/ 10112 100% = 21.9% 2223/ 24128 100% = 9.2% 10471/ 24128 100% = 43.3% [(7431/2) 24128] 100% = 3715.5/ 24128 100% = 15.3% [(7431/2) 24128] 100% = 3715.5/ 24128 100% = 15.3% 3/ 24128 100% = 0.012%
NPM
GPM
SER
GER
FER
Stability Ratios
2011
2012
Interpretation
Working Capital
2.85 : 1
2.98 : 1
During the period of 2011 and 2012, the working capital has increased from 2.85: 1 to 2.98: 1. This means that the companys ability to pay the current liabilities with current assets is getting better. Furthermore, it also satisfies the minimum 2: 1. During the period of 2011 and 2012, the total debt has decreased from 34.4% to 32.9%. This means that the company is carrying less debt. During the period of 2011 and 2012, the inventory turnout has decreased from 4.8 days to 4.5 days. This shows that the company is selling their goods faster than the previous year. During the period of 2011 and 2012, the debtor turnover has increased from 7.2 days to 7.5 days. This means that the company is slower in collecting debts compared to the previous year. During the period of 2011 and 2012, the interest coverage has increased from 534.3 times to 742 times. This means that the companys ability to pay its interest expenses is getting better.
Total Debt
34.4%
32.9%
Inventory Turnout
4.8 days
4.5 days
Debtor Turnover
7.2 days
7.5 days
Interest Coverage
534.3 times
742 times
Stability Ratios
2011
2012
Working Capital
11531 / 3865 = 2.98 : 1 5084 / 15465 100% = 32.9% 13657 [(3350 + 2715) / 2] = 13657 / 3032.5 = 4.5 days 24128 [(3280 + 3138) / 2] = 24128 / 3209 = 7.5 days (2223 + 3) 3 = 742 times
Total Debt
Inventory Turnout
Debtor Turnover
Interest Coverage
Interpretation: The latest P/E ratio of Nike Company is 22.4. This means that the investor needs to wait a longer period to claim back his original principal. In this case, the investor would need to wait for more than 22 years.
With reference to the above calculations and interpretations, we have come to a decision that Nike Inc. is a profitable and stable company on its own, as they are getting more returns on capital, they control their expenses well and they carry less debt, when comparing the years 2011 and 2012. However, it is not advisable to invest in this company as the P/E ratio for Nike is above 15. The minimum requirement for an investor to invest in a company is to ensure that the P/E ratio is less than 15.
( NikeInc, 2013)
( NikeInc, 2013)
References 1.Carbasho T. (2010) Corporations That Changed The World: Nike. California, Santa Barbara . 2.Frankwood , Sangster A.(2002) Business Accounting. Prentice Hall 3.Lussier N.R (2008) Management Fundamentals: Concepts, Applications, Skill Development. Cengage Learning 4. Millichamp A. (2003) Foundation Accounting. DP publications Ltd. 5. Nike Biz. (2013) Nike Brand Factories and Regional Products. [Online] Retrieved from: http://nikebiz.com [Retrieved on 10th January 2013] 6 Nike Inc. (2011) 1980-1989 A Decade of Transition and Rededication. [Online] Retrieved from: http://nikeinc.com [Retrieved on 10th January 2013] 7. NYSE:NKE (2013) Market Share Price of Nike.[Online] Retrieved from: http://www.google.com/finance?q=NYSE:NKE [Retrieved on 16th January 2013]