4. NIKE’S RECENT DEVELOPMENT
Since the 1970’s, Nike has come a long way from being a domestic
American brand transforming into an international powerhouse for athletic
apparel. With the all the crazy advancements in technology, it would sure to have
spilled some over into the world of athleticism. Currently Nike features research
facilities such as motion capture labs where athletes will perform an action and be
recorded on high speed cameras whereby it will be analysed by nurses and
coaches advising at which moment in time the weight is located in which internal
joint, by gathering these insight Nike is able to develop a better understanding
and is able to develop better future products allowing athletes to outperform their
predecessors by adding science into the designs of the products, ever improving
the material, quality and weight of their apparel, reducing the drag on clothings
and incorporating technology as a training companion, such as the newly released
fitband a device which encourages the average joe to take the stairs instead of the
escalator in a fun and competitive way.
5. Profitability
The following table shows the calculation and interpretation of NIKE from
the year 2013 to 2014 ( US dollars in millions)
Profitability Ratios 2013 2014 Interpretation
Return on Equity
( ROE )
2472
10952.5
= 22.6%
2693
10952.5
= 24.5%
During the year 2013 to 2014,
the ROE has increased from
22.6% to 24.5%. This means
NIKE is getting more return from
the capital than last year.
Net Profit Margin
( NPM )
2472
25313
= 9.8%
2693
27799
= 9.7%
During the year 2013 to 2014,
the NPM has decreased from
9.8% to 9.7%. This means the
ability of NIKE to control its
expenses is worse than last year.
Gross Profit Margin
( GPM )
11034
25313
= 43.6%
12446
27799
= 44.8%
During the year 2013 to 2014,
the GPM has increased from
43.6% to 44.8%. This means the
ability of NIKE to control its cost
of goods sold (COGS) expense is
better than last year.
Selling Exp. Ratio
( SER )
7796
25313
= 30.8%
8766
27799
= 31.5%
During the year 2013 to 2014,
the SER has increased from
30.8% to 31.5%. This means the
ability of NIKE to control its
selling expenses is getting worse.
General Exp. Ratio
( GER )
0
25313
= 0 %
103
27799
= 0.4%
During the year 2013 to 2014,
the GER of Nike had increased
from 0% to 0.4%. The ability of
the business to control its general
expenses is getting worse.
7. Stability
The following table shows the calculation and interpretation of NIKE from
the year 2013 to 2014 ( US dollars in millions)
Financial Stability Ratio 2013 2014 Interpretation
Working Capital Ratio
(WCR)
13630
3962
= 3.44 : 1
13696
5027
= 2.72 : 1
During the year 2013 to 2014, the
WCR has increased from 3.44:1 to
2.72:1. This means the ability of
business to pay current liabilities
with current assets is getting
worse than last year.
However,addition, it satisfy the
minimum requirement of 2:1.
Total debt ratio
(TDR)
6464
17545
= 36.8%
7770
18594
= 41.8%
During the year 20132014, the
TDR has increased from 36.8% to
41.8%. This means the total debt
of business has increased. In
addition, it satisfy the maximum
limit by 50%.
Inventory Turnover Ratio
( ITR )
365÷ 14279
3353
= 85.7 days
365÷ 15353
3715.5
= 88.3 days
During the year 2013 to 2014, the
ITR has increased from 85.7 days
to 88.3 days. This means the
business sell their goods is getting
slower.
Debtor Turnover Ratio
( DTR )
365÷ 12656.5
3117
= 89.9 days
365÷ 13899.5
3434
= 90.2 days
During the year 2013 to 2014, the
DTR has increased from 89.9 days
to 90.2 days. This means the
business is taking longer times to
collect the debt.
Interest Coverage Ratio
( ICR )
0+2693
0
= 0 time
33+2693
33
= 82.6 times
During the year 2013 to 2014, the
ICR has increased from 0 time to
82.6 times. This means the ability
of the business to pay the interest
is getting better. In addition, it
satisfy the minimum requirement
of 5 times.
9. Investment Recommendation
Based on profitability ratio, we obtained the total Net profit margin figure
(NPM). The Selling expenses (SER) and general expenses (GER) ratio for nike
showed their method of handling the business had worsen even though the gross
profit margin (GPM) and return on equity (ROE) had increased. Nike’s ability to
pay off their current liabilities is also worsening but still satisfies the 2:1 ratio of
staying within the borderline of borrowing. Nike’s total debt has also increased
and it satisfies the 50% maximum limit. Their stock turnover has also slowed
down and they are taking a longer time to reclaim old debts. On the flip side their
ability for paying interest is getting better.
In conclusion nike earned more profit in 2014 compared to 2013. The
company has shown good promise in terms of revenue growth in the future as it
has always managed to stay ahead of the pack not only financially but also
product wise. Nike also has received AAA ratings from several different stock
analysts since and has proven itself to be a very stable company. Although Nike
is a great company but we do not recommend purchasing any shares from this
company as it would take over a calculated 30 years to earn back a profit on your
investment.
15. REFERENCE
1. NKE Key Financial Ratios. (2015, June 1). Retrieved June 2, 2015, from
http://www.nasdaq.com/symbol/nke/financials?query=ratios
2. Jones, D. (2015, May 26). The footwear and apparel giant is set to report
an upside fiscal fourth quarter in late June. Nike Shares Could Run Up to
$120, p. 1. Retrieved June 2, 2015, from
http://online.barrons.com/articles/nikesharescouldrunupto120143266
3122
3. Schaefer, S. (2015, May 11). The World's Most Valuable Brands. Forbes,
77.
4. Gibson, C., & Gibson, C. (2001). Financial reporting and analysis: Using
financial accounting information (8th ed., p. 307). Cincinnati, Ohio,
Hamilton City: SouthWestern College Pub.
5. Anon, (2015). [online] Available at:
http://investors.nike.com/files/doc_financials/2014/docs/nike2014form1
0K.pdf [Accessed 1 Jun. 2015].