Financial Analysis: Nike Inc Term Paper Samples

Type of paper: Term Paper

Topic: Nike, Company, Investment, Finance, Liquidity, Taxes, Increase, Adidas

Pages: 6

Words: 1650

Published: 2023/02/22

Introduction

In this paper, we will be analyzing the raw financial data of Nike Inc. using the analysis tools of horizontal financial statements and liquidity ratios. The sole objective of carrying out analysis is to provide investment recommendation for the company’s stock based on outcome of the analysis.

About the company

-Profile
Nike Inc. is an American multinational company that is engaged in design, development, manufacturing and marketing of athletic footwear, apparels and accessories. Founded in the year 1964 as Blue Sports Ribbon Inc., Nike Inc. is the leader of sports footwear and apparel industry with revenue figures of $28 billion by the end of 2014, and brand value alone estimated at $19 billion making it the most valuable brand amongst sports business industry. By the end of 2014, the company had employed 56500 individuals working in different locations worldwide.
-Industry and Competitors
As disclosed above, the company operates in Sports Footwear and Apparel Industry, and face rivalry from companies such as Adidas and Puma. Below is the direct comparison of Nike Inc. and its close rival,

Adidas:

-Main Products

Nike Inc. offers following products to its customers:

Athletic Footwear
Outdoor Sports Apparel
Sports Accessories
-Income Statement Analysis
Referring to the horizontal income statement above, we can witness that Nike Inc. has performed according to its reputation by showing consistent growth in the revenue figures. As for 2013, the revenue figures surged by 4.91%, followed by 9.82% in 2014. The gross margins of the company were also capitalized at higher amount during 2014 amid significant growth in the revenue figures that year. However, during 2014, the company could not capitalize the gross margins well because of operating expenses that increased by 12.67% in comparison to 4.70% increase in 2013. As a result, the net income figures could only grow by 8.37% as against 11.79% increase in 2013, but still the growth figure is very much sustainable.
Overall, the income statement of the company spells out strong financial standing of the company, where consistent high revenue figures and profitability numbers are sure to attract the investors.

Horizontal Balance Sheet

-Horizontal Balance Sheet Analysis
Referring to the balance sheet figures above, we can witness that during 2014, Nike Inc. faced significant downfall in the cash figures as the overall cash reserve fell by 33.47%, while during the previous year, the same had increased by 44.02%. However, remaining current assets such as receivables, inventory, et cetera had showed marginal improvement as the current assets increased by merely 0.50% during 2014. As for investment in the capital assets, Nike Inc. was quite liberal in their spending for purchase of plant and machinery, as the figures for net property, plant and equipment surged by 15.58% as against 7.59% increase in 2013. Overall, the total asset base of the company increased by 5.74% during 2014, as against 13.70% in 2013.
As for liabilities position, we can start witnessing the affected liquidity position of the company as while the current assets could only manage an increase of 0.50%, current liabilities surged by 28.04% led by current taxes payable that increased by 119.31% during 2014. As for non-current liabilities, Nike Inc. took the path of low debt funding during 2014 as the same plummeted by 0.91% this year, while the total non-current liabilities increased by 9.63% this year as against 105.25% increase in the previous year. Overall, total liabilities of the companies increased by 20.88% this year.

Liquidity Ratios

Moving to the last section of this paper, we will now calculate the liquidity ratios of the company to ascertain its ability to honor its short-term payments as and when they become due. Below discussed is the trend in three liquidity ratios of Nike Inc. for past two years:
-Current Ratio: Current Assets/ Current Liabilities

Nike Inc:

2013: 13626/3926= 3.47
2014: 13696/5027= 2.72

Adidas Inc:

2013: 6857/4732= 1.44
2014: 7374/4378= 1.66
-Quick Ratio: (Cash + Receivables)/Current Liabilities

Nike Inc:

2013: (5965+3117)/3926= 2.31
2014: (5142+3434)/5027= 1.70

Adidas Inc:

2013: (1811+1801)/4732= 0.76
2014: (2086+1946)/4378= 0.92
-Cash Ratio: Cash/Current Liabilities

Nike Inc:

2013: 5965/3926= 1.51
2014: 5142/5027= 1.02

Adidas Inc:

2013: 1811/4732= 0.38
2014: 2086/4378= 0.47
-Liquidity Analysis
Referring to the above calculations, we witness that during 2014, the liquidity roots of Nike Inc. were stroked a bit with all the liquidity ratios on the declining trend. To begin with current ratio, the multiple declined from 3.47 to 2.72 amid significant increase in the current liabilities while the current assets could only increase by 0.50%. Similar was the trend with acid ratio and cash ratio which also followed declining trend because of 13.80% fall in the cash figures during 2014, while the current liabilities continued to increase.
However, we will still not rate the above trend in the negative phase because in comparison to the liquidity ratios of its rival Adidas, Nike Inc. has relatively higher multiples. Moreover, for a company that has current assets near to 3 times than its current liabilities, the liquidity is not an issue. Therefore, on comparing the ratios with that of its competitor company, Adidas, we give a positive nod to the liquidity position of Nike Inc. with firm believe that it will soon regain increasing trend in the liquidity figures.

Recommendation: Buy

Considering our analysis above, we strongly recommend this stock to the investors. As we witnessed that Nike Inc. has been able to increase revenue figures year-by-year, and is earning sustainable profit figures, we have no doubts that the company will continue this period of growth, and will add value for the shareholders.
As for liquidity, investors should not worry about the declining trend in the liquidity ratios, as not only the multiples are still above in comparison to that of Adidas Inc. but there is no point of raising concerns for a company with current assets in manifold position than its current liabilities.
Our recommendation is also in alignment with the opinion of 28 analysts following the company:

References

Analyst Opinion: Nike Inc. (2015, April 24). Retrieved from Yahoo Finance: http://finance.yahoo.com/q/ao?s=NKE+Analyst+Opinion
Balance Sheet: Nike Inc. (2015, April 24). Retrieved from Morningstar: http://financials.morningstar.com/balance-sheet/bs.html?t=ADDYY®ion=usa&culture=en-US
Income Statement: Nike Inc. (2015, April 24). Retrieved from Morningstar: http://financials.morningstar.com/income-statement/is.html?t=ADDYY®ion=usa&culture=en-US

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Financial Analysis: Nike Inc Term Paper Samples. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/financial-analysis-nike-inc-term-paper-samples/. Published Feb 22, 2023. Accessed April 24, 2024.
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