Week 8

Financial Analysis of Nike, Inc.

Mariea Pack-Elder

Grand Canyon University: FIN-504

June 27, 2016

Financial Analysis of Nike, Inc.

Financial analysis of a company is the assessment of the ability of a company to be profitable and stable in the business venture that the company decides to carry out(Gowthorpe, 2008). There are many factors that financial analysts consider when they are doing financial analysis of a company.Some of the considerations are made in the investments that a company makes on the assets and economic performance of such a company. The discussion below will look at the financial analysis of Nike, Inc. taking at the two factors mention above and comparing it with the financial analysis of its closes competitor Adidas.

Nike as an athletic sportswear and apparel producing company has so many assets. Some of the assets that Nike have include various plants, equipment and property that they have acquired in different countries all over the world. Another type of asset that Nike, Inc. is cash and equivalent of cash. Others assets are inventories, short-term investments, goodwill and accounts receivable. Using the financial report of 2014 the total assets of the company was valued at $4.1B(Martins, 2015).

From the value of assets as at 2014 will be used to calculate Asset Turnover Ratio. This is one of the methods that can be used by a company to know whether they can generate sales from the assets that they have. The ratio show how a company can efficiently generates sales from the assets. The formula for calculating the Asset Turnover Ratio is by getting a division of the net sales by total value of the assets.

Asset Turnover Ratio = Net Sales

Value of total sales

= $20.4B

$4.1B

= 4.97

This from the calculations is for every dollar of the assets, the company is able to generate 49.7 cents of the sales. If the Asset Turnover Ratio of Adidas of the same year that is 2014 was 2.82. This means that the viability of Nike Companyin the market is far much better compared to its competitor Adidas. Therefore, there is probability of the Nike making profits using the assets that it has is much higher compared to other companies in the same category.

The economic performance of Nike if we evaluate it using the 2015 financial reports can be said to be good. This is because the 2015 ended with a rise in its revenues with about 10% from the previous year. The revenue increased from $27,852 million to $30,411 million. The rise can be attributed to the increase in the sales in its major market that is the United State. The increase makes it the largest control of the market at approximately 30% of the market. Thus, the company is still capable of making profits(Workuch, 2015).

Nike also is currently is using some of the best strategies to ensure they minimize on the costs while maximizing on the profits. Nike uses a strategy of not producing or manufacturing its products but designs the products then give the designs to be made by independent companies to produce them and then market and sell the products. Nike also use some of the famous players in different sports to endorse their products to help increase the consumer preference. Nike also ensure that their products are produced outside United States, since the cost of production there is much higher compared to the rest of the countries(Delavose, 2013).

This strategy differs from that of its competitor Adidas. Adidas has manufacturing companies that it owns, which helps them in production of their designed products. Thus their cost of production is much higher compared to that of Nike, this then in return make Nike a more stable and viable business entity compared to Adidas its competitor.

Financial Projection for Nike in the next five years

	May 2016	May 2017	May 2018	May 2019	May 2020
Short-term investments	2,072	2,922	2,668	1,440	2,583
Cash and Equivalents	3,852	2,220	3,337	2,317	1,995
Inventory	4,337	3,947	3,434	3,350	2,715
Income taxes	389	355	308	274	312
Accounts receivable	3,358	3,434	3,117	3,280	3,138
Property and equipment	3,011	2,834	2,452	2,279	2,115
Good will	131	131	131	201	205
Prepaid expenses	1,968	818	802	870	594
Intangible assets	281	282	382	535	487
Other Assets	2,201	1,651	993	919	894
Total	21,600	18,594	17,584	15,468	14,998

From the projection of the table, the profitability ratio of each year can be known when calculated. For example the calculations for the ratio of Return on Assets (ROA)

ROA = 100× Net Income÷ Total Assets

= 100×20.87÷14.32

= 145.74

From the calculations on the ratio of Return on Assets, we can say that the profitability of Nike as a company is very high and very good compared to the competitors.

In conclusion, financial analysis is very important for a company as it helps make the company realize whether the venture it is likely to get into is one that can bring in profits which is the aim and goal of every business entity. For Nike as a company, the financial analysis that has been done show that it is a stable and viable business, which can make profits as the goals of the company.

References

Delavose, C. (2013). Nike, inc. Ontario: Book On Demand Ltd.

Gowthorpe, C. (2008). Financial analysis. Oxford: CIMA.

Martins, J. (2015). Dynamic Financial Ratio Analysis. SpringerReference, 16-25.

Workuch, R. (2015). Nike, Inc. Encyclopedia of Business Ethics and Society, 12-18.