1

Running head: NIKE INCORPORATION ANALYSIS

Nike Incorporation
Financial Analysis

03/22/2018
 2
NIKE INCORPORATION ANALYSIS

Introduction
Nike Inc. (Nike), incorporated in 1968, Oregon, is world’s largest seller of athletic

footwear and apparel. The company sell through retail accounts, owned-stores, internet websites,

and mix of distributors and licensees throughout the world. While all the products are

manufactured by contractors and entire production of footwear and apparel is based outside the

USA, the equipment products are produced in the USA and abroad. The company owns several

brands and trademarks which include “NIKE, Hurley, Converse, Chuck Taylor, All Star, One

Star, Star Chevron, Jordan.” Under NIKE brand, the company offers products in eight key

categories – Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, Action

Sports, Sportswear, and Golf. By the end of fiscal year 2014, the company had 322 direct-to-

consumers retail stores in the USA and 536 stores in 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 spend USD 880 million on capital expenditure.

Through this note we have made an attempt 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 sell its products in the

USA and in 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 increases in revenues for both brands NIKE and Converse. Every geography, for brand

NIKE, delivers growth in revenues over 2013. North America contributed 4 percentage points

increase in overall revenues, while Western Europe and Emerging Markets each contributed 2
 3
NIKE INCORPORATION ANALYSIS
percentage points each, and Central and Eastern Europe and Converse each contributed 1

percentage point.

Similarly chart 1 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. In 2013 as

well, every geography, for brand NIKE, delivers revenue growth. North America contributed 6

percentage points to overall revenue growth, Emerging Markets contributed 2 percentage points,

and Central and Eastern Europe and Converse contributed 1 percentage point each. Greater

China reduced the revenue growth by 1 percentage point.

Debt to Equity ratio

Debt-to-Equity ratio (D/E ratio) is calculated as Total Debt / Shareholders’ Equity. The

ratio shows the proportion of debt in comparison to equity being used to finance firm’s growth.

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 1 which indicate 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

Earnings per share (EPS) is 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.

Chart 3 in the Appendix shows that EPS of Nike during the fiscal 2012 to 2014 grew

considerably from USD 1.18 to USD 1.49 respectively resulting an increase 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 shows an increasing trend but at with reducing

pace in growth.
 4
NIKE INCORPORATION ANALYSIS
Return on equity analysis
The return on equity (ROE) measures the rate of return earned on investment made by the

equity shareholders. Growth in EPS is directly related to growth in ROE. Higher the growth in

EPS, higher is the value of ROE. Return on equity is calculated as Net Income / Shareholders

Equity.

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 increase in Net Income and partly

driven by decline in outstanding equity stock owing to share buyback program.

Current ratio analysis

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, cash). Current ratio more than 1.0 showcase firm’s healthy position to meet its current

term obligations. It is measured as 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. Besides the company also faces stiff competition from regional brands

especially on price points across all markets of their operations.

 5
NIKE INCORPORATION ANALYSIS

Appendix
Chart 1  NIKE’s Revenues
USD Millions
27,799

25,313

23,331

2012 2013 2014

Chart 2  D/E Ratio

0.11 0.11

0.02

2012 2013 2014

 6
NIKE INCORPORATION ANALYSIS
Chart 3  Earnings Per Share
In USD 1.49
1.35
1.18

2012 2013 2014

Chart 4  Return on Equity

25%

23%

22%

2012 2013 2014

 7
NIKE INCORPORATION ANALYSIS
Chart 5  Current Ratio

3.5
3.0
2.7

2012 2013 2014