Nike Financial Analysis Essay

Nikeis a family that has thoroughly embedded itself into the psyche of batch around the world. Its a familiarity that started with humble origins from selling footgear in the basement to becoming the behemoth in the athletic industry. Bill Bowerman, University of Oregon frustrate field coach, and Phil Knight, middle-distance runner under Bowerman co-founded Nike. Nike was first established as Blue laurel wreath Sports in 1964 as a union and the name Nike was officially adopted on May 30, 1978. The infamous Nike Logo Swoosh, was created for a fee of $35 by Carolyn Davidson, a interpretics design student.In 1980, Nike becomes a publicly traded company with the completion of its sign Public Offering of 2,377,000 sh bes of Class B Common Stock on new-fangled York Stock Exchange with the air token NKE. Today, Nike prosecutes over 27,000 people across the globe, and has cabbage gross in excess of $13 billion. The purpose of this paper is to provide investors with countywide information on Nike, its financial health and activities, its strength and weaknesses, and whether Nike creates value to its shargonholders. This paper pull up stakes analyze Nikes capital structure, mountain range of planetary ope balancens, recent stock murder, and dividend policy.We depart examine how Nikes external ope balancens atomic number 18 conducted, its criticisms and strengths. Nikes debt proportionalitys, dividend makeout proportionalitys, dividend expect, and interest insurance insurance coverage dimensions over the previous 5 categorys will be discussed and compargond with industry bench marks. Its stick around ratings and the relation between the operating characteristics and its l incessantlyage will in any case be analyzed. Managers for Nike are creating value for shareholders by expanding Nike trading trading ope dimensionns in foreign markets as oft as possible. Nikes gross revenue and earnings outpaced groyne Street estimates FY 06. N ikes gross gross gross gross sales reached $15 billion and its earnings per share were up 18%.Over the quondam(prenominal) 5 twelvemonths, Nikes earnings per share on compounded rate were up 20%, gross margins averaged 42% and in the past unravel of instruction, Nike delivered 44% margins in a purpose of rising costs. The current managers are maximising shareholders wealth solely in the footwear industry, Nikes consummation still falls. The footwear industry averaged roughly 14. 25%, speckle Nikes exploitation in stock was 10. 48%. If the join on in value of shares is a benchmark of performance for managers, Nikes performance is unimpressive. Nike has a Price to Book (MRQ) ratio of 3. 97, while the industry Nike competes in has a ratio of 3. 96.SP euchre has a Price to Book (MRQ) ratio of 3. 90. Nike has a Price to Tangible Book (MRQ) ratio of 4. 26, while the industry has a ratio of 4. 44, and the SP ergocalciferol has a ratio of 7. 22. The Nike brand itself is the biggest strength of Nike. Its new(prenominal) strengths include international operations where it is expanding rapaciously, intent of new products and ability to connect with its consumers. throngs perception of Nike as an drug user of workers in developing nations, might take a crap considerable damage to its brand, and the poor performance of its stock relative to its industry is also one and only(a) of its weaknesses.Nikes managers must maximize shareholders wealth, which is not at its optimum level. As a world-renowned multi-national corporation, Nike has a presence in almost e really nation. Nike itself started by merchandise athletic shoes from a Nipponese company called Onitsuka Tiger Company. Nike earns more revenues from its international operations than its home(prenominal) market. Nike earned round $6. 5 billion FY 2005 from its international operations, compared to $5. 1 billion from its domestic market. International operations appear to be a disclose drive r of Nikes issue. Nikes international operations are divided into 3 different personas.The EMEA parting oversees operations in Europe, heart and soul East, and Africa. The Asia peaceable Region oversees operations in East Asia, southwestward Asia, southeastward Asia, and the Pacific. The Americas region oversees operations in South America, and North America (excluding United States). Europe, Middle East, Africa (EMEA) is headquartered in Hilversum, Netherlands. In impairment of revenue, the EMEA is Nikes second largest region. EMEA region contributed virtually $4. 3 billion in revenues for Nike. Of these, footwear revenues contributed $2. 5 billion, apparel revenues contributed $1. 5 billion and equipment revenues contributed $284. zillion. FY05, 31% of Nike brand revenue was generated by sales in the EMEA region. This region is also the trey largest in terms of manufacturing. EMEA region employs active 6,000 Nike employees, and has about 104 contract factories. These fa ctories in addition, employ 29,242 workers. The Asia Pacific region is Nikes trine largest in terms of revenue, and the largest in terms of manufacturing. Nike has 13 branch offices and subsidiaries in the Asia Pacific region. China has become both a source country and a decisive market for Nike. Asia Pacific region has 3,282 Nike employees almost.The region also has 252 contract factories located in North Asia, and 238 contract factories located in South Asia. Combined, these factories employ 550,821 workers. Nikes revenues for year 2004 from its Asian operations were about $1. 6 billion. Of these revenues, approximately $855 trillion were from footwear sales, $612 million from apparel sales and $146 million from equipment sales. The Americas region is the smallest in terms of revenue second largest in regards to manufacturing. The first Nike shoe ever contracted out was done in Mexico in 1971. For year 2003, the region provided Nike with revenues of $624 million.Of these revenu es $412 million were from footwear sales, $166 million from apparel sales and $47 million from equipment sales. This region has approximately 1076 Nike employees and additional 44,568 workers working in 137 nitty-gritty contract factories. Nike has branch offices and subsidiaries in quintuple countries. Some of the challenges that Nike has faced and still faces are in regards to its manufacturing facilities and violation of labor laws. Nike has been accuse on numerous occasions of employing children in its factories or exploiting workers in developing countries.In response to these allegations, Nike implemented strict standards for manufacturing facilities, including marginal age, air quality, mandatory education programs, refinement of micro-loan programs, factory monitoring, and enhanced transparency of Nikes corporate responsibility practices. In site to better its image, Nike even ceased orders from Pakistan in November 20, 2006 as the soccer-ball manufacturer there failed t o correct labor-compliance violations. inquiry of Nikes debt ratios reveals that the company has less debt in proportion to its assets.In 2002, Nike had a debt ratio of . 404 with supply assets macrocosm worth about $6. 44 billion, and aggregate debt of $2. 60 billion. In 2003, Nikes debt ratio increased to . 415, its total assets increased by $378. 1 million, and its total debt increased by $226. 4 million. Debt ratio fell to . 394 in 2004, and fell and in 2005 to . 358. In the year 2006, Nikes debt ratio increased to . 363, and had total assets of $9. 87 billion and total debt of $3. 58 billion. examination of Nikes interest coverage ratio reveals that the strong atomic number 50 sufficiently pay outstanding debt.If one were to take all Nikes interest coverage ratios into account, it stooge be said that Nike generates sufficient revenue to satisfy interest write offs. In the year 2002, Nike had an interest coverage ratio of 22. 43. This gain ground increased to 29. 04 the following year with EBIT amounting $1. 25 billion and interest expenditure amounting to $42. 9 million. In the year 2004, interest coverage ratio increased phenomenally to 59, with EBIT existence $1. 48 billion and interest expense being $25 million. Finally for the year 2005, the interest coverage ratio was 388. 485 with EBIT being $1. 86 billion and interest expense being $4.million. Nike has a 5-year average supplement ratio of 1. 5, the industry leverage ratio is about 1. 5, and SP calciferol Index has a leverage of 4. 9. The firms leverage shows that Nike is using long debt, and it is measurable and appropriate. The operating characteristics include mint of sales in tune of $13,739. 7 million FY 2005, $12,739. 7 million sales in 2004, $10,697. 0 million sales in 2003, 9893. 0 million sales in 2002, and 9488. 8 million sales in 2001. These financial conditions indicate that Nike, Inc. percentages are not high and provide bulwark for the stockholders.Nikes bond ratings by pertinacious for Senior Unsecured loan has a rating of A2, an Aa3 rating for Credit default Swap, Aaa for Equity-Implied, and an A2 rating for Bond-implied. Nike pays dividends to its shareholders every quarter. In the past 5 years, Nikes dividends ranged from $. 12 a share in exhibit of 2002 to $. 37 a share in declination of 2006. Nikes dividend rate is much higher than both the industry average, and the SP 500 Index. For the last 12 months, the dividend rate paid by Nike was 1. 48 while the industry average was . 32, and the SP index dividend rate was . 74. Nikes annual dividend yield is about 1. 0%, while the payout ratio is 24%. K-Swiss, one of Nikes competitors has an annual dividend rate of . 20, annual dividend yield of . 60% and a payout ratio of 9%. Skechers USA, another competitor, paid no dividends. The dividend yield of SP 500 was 2. 06%, while the dividend yield in the footwear industry was 1. 44%. The payout ratio for the footwear industry was 20. 37%, and the SP payout ratio was 28. 23%. Although, SP 500 performed better than Nike in regards to dividend yield and payout ratio, one has to take into account that in footwear industry, Nikes dividend yield and payout ratio were considerably higher than its competitors.In regards to its dividend policy, Nike is very attractive, and is very much ahead of the tamp down. Nike also has a Dividend Reinvestment Plan (DRIP) and allows its shareholders to accede in it through its Nike Direct-SERVICE Program. Through this program, shareholders can convert their cash dividends into shares at a significant discount to the current share expenditure. Nike has a market value of $24. 41 billion. Approximately 1. 33 million shares are traded daily on average. Over the course of 5 years, Nikes stock price went from $56. 92 as of Jan 2, 2002 to $97. 45 as of Dec 11, 2006 an increase of 71. 5%. The graph below illustrates Nikes 5 form trend. In the recent year, the firms shares were traded as high as $99. 30, and as low as $75. 52. The firm started with a stock price of $85. 95 in the beginning of the year and as of December 12, 2006 closed at $96. 57 a . 90% decrease from the previous day. The stock performance trend reveals that Nike experiences a greater loss during the months of August and September, and greater gains in October thru December, which is the holiday season. The graph below shows Nikes stock performance trend in the recent year.The chart below shows exploitation in Footwear Industry in compare to S&P 500 index. In conclusion, Nikes future growth would primarily derive from its foreign operations. As the footwear industry in the domestic market has slowed, Nike has to expand aggressively in foreign markets. Nike pays more dividends in comparison to its competitors the firm should reinvest that money in aggressive expansion in foreign markets rather than giving back the shareholders the profit. Nikes returns are also significantly less than the S&P 500 index and at bottom its own industry.