Case Analysis of Nike, Inc.: Cost of Capital

The report focuses on the Economic Value Added of Nike Inc. The analysis is conducted through a detailed assessment of the financial statements including income statement, balance sheet, and cash flow. Such financial statements are then applied to derive common-size statements for income statement and balance. The trends and predictions obtained from the common-size statements predict the future economic value. Similarly, the Pro-forma financial statements derived provide vital future economic performances of Nike Inc. According to the regression analysis and the assessment of the common-size and Pro-forma financial statements; Nike Inc. has a growth in revenue and earnings per share. The EVA computed using WACC, Net Operating Profit after Taxes (NOPAT), and Invested Capital is positive (+$391.24); this shows that Nike Inc. is financially stable and will grow in the next three years.

Expanding globally is a very serious decision for any corporation. Before making this decision, management should take into consideration the health of the corporation and identify the long term financial goals. In this assignment, I will discuss the importance for the financial managers of Nike Inc. to use economic variables in identifying long term financial goals and the major techniques/tools that the financial managers of Nike Inc. can use for forecasting future directions in the stock market and in the economy as a whole.

Nike is a company that has thoroughly embedded itself into the psyche of people around the world. It's a company that started with humble origins from selling footwear in the basement to becoming the behemoth in the athletic industry. Bill Bowerman, University of Oregon track & field coach, and Phil Knight, middle-distance runner under Bowerman co-founded Nike. Nike was first established as Blue Ribbon Sports in 1964 as a partnership 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 graphics design student. In 1980, Nike becomes a publicly traded company with the completion of its Initial Public Offering of 2,377,000 shares

Nike’s stock market worksheet shows us in general that their financials are in a rising trend. First, their stock value today is 58.43 (positive). In addition, the analysts recommendations are that 14 recommend to buy shares, 5 recommend to hold shares, and 0 recommendations to sell them. Thus, our group’s recommendation is to invest in Nike as a result of the terms above.

Should you use book or market value weights? If you want market value of debt use (BV/100) * Price

NIKE’s positive net income growth rate is heavily impacted by items reported under “Other Income”. One component of “Other Income” consists of the foreign currency conversion gain/ loss that NIKE sustains. As a global retailed the impact of foreign currency transactions is unavoidable. The net effect of foreign currency is driven up by a gain of $26 million dollars for fiscal year 2016 which is significantly less than the $147 million reported for fiscal year 2015. This is a result in the volatility of the global economy. The subsequent increase of $114 million in “Other Income” reported due to a legal judgment related to a bankruptcy case in Western Europe for fiscal year 2016 as well as unrealized gain and loss on securities and other income.

Investing in a company has certainly changed over the years. Financial information is literally at one's fingertips via the internet. In today's fast paced corporate environment companies are under tremendous scrutiny to maintain their edge. The company I am evaluating is NIKE. This Financial analysis will consist of the following: Ratios from the Income Statement, Statement of Owner's Equity, and Balance Sheet. This information is designed to assist a potential investor.

During the beginning of the first quarter which was reported on September 25, 2014, Nike reported their revenues going up fifteen percent at eight billion dollars. The earnings per share went up twenty seven percent with $1.09, and the worldwide future order were said to increase eleven percent excluding currency changes. Conveniently the revenue of Nike whent up fourteen percent as of August 31, 2014. Even after the dramatic change in the currency changes, the demand of Nike and their products went up making Nike earn more revenue (Yahoo Finance)("Morningstar Investment Research Center." Morningstar Investment Research Center. Morningstar, 29 Nov. 2015. Web. 29 Nov. 2015.)

When comparing Nike to two of its top competitors in the same industry (textile: apparel, footwear & accessories) we found using these five metrics (above) to be the most suitable. Nike is performing very well compared to its top competitors; Under Armour and Adidas. Nike has the highest net profit margin and operating profit margin, which indicates that the company is better at managing its cost and turning sales into profit. Also, Nike has an extremely high return on assets (ROA) and return on equity (ROE) compared to Under Armour and Adidas. The high ROA indicates that Nike is efficiently using its assets to boost sales. The ROA also shows that the company has solid financial and operating performances. The high ROE reveals that Nike’s management is utilizing its equity base efficiently, therefore telling shareholders and investors their money is being used effectively. Finally, Nike does not have the highest price-earnings

Nike’s total revenue has steadily increased over the years. In 2013, Nike’s cash and equivalents totaled of $3.3 billion. This was 25.5% higher than cash and equivalents in 2012. Cash and cash equivalent is one of the big asset account in the company’s assets. Cash increased by 18.5% in 2012, and in 2013 it increased by 44%. Nike has an up and down in short-term investments account. In 2012, the short-term investments decreased by 44.3% but in 2013 it went up almost double by 82.5%. In 2011, investments made up 17.2%, in 2012 investments made up 9.3%, and in 2013 investments made up 15% of the company’s total assets.

This brings us to our outcome that that Nike is a buy stock along with a good investment. Therefore, our calculations of the cost of debt and the capital structure of the company differ from Cohen’s analysis that gave her a discount rate of 8.4%. Cohen’s discount rate would also put the current price as undervalued just more so than our analysis would predict. Conservatism of outlook regarding discretionary usage of models could be an important consideration also.

Enderle, K., Hirsch, D., Micka, L., Saving, B., Shah, S., Szerwinski, T. (2000, March 14). Strategic Analysis of Nike, Inc. Retrieved on December 14, 2005, from

The Oregon-based company, Nike Inc., is one of the biggest brands across the world. Nike is dominating the segment of athletic footwear, clothing and accessories through a strong market base. According to Yahoo Finance ( 2016), Nike has a market capitalisation of $85.14 billion whereas its competitors such as Adidas (32.63) puma ( 3.68) ralph lauren (8.01) JC Penny ( 2.62). Such a huge market capitalisation has led Nike to have P/E ratio of 25.56 which is lower than the industry (textile – footwear apparel and accessories) of 19.4. This suggests that investors expects the company to grow. Nike has achieved this by clo

In this module case study I will briefly review Nike Inc. (NKE) and how important it is for the financial managers to use economic variables in order to identify their long term financial goals. I will also go over a few techniques that the financial managers of Nike Inc. could use for economic forecasting in the global economy.

Although revenues declined in 1999, net income increased by 13% over the prior year. As the graph below illustrates, net income has been volatile in the latter half of the 90 's. Sharp decreases in 1998 and 1999 net income were due to restructuring charges. If these charges had not been incurred, income would have been flat for both years. Efficiency in cost control and inventory management has allowed net income to increase while revenues decreased in 1999. Note that the largest growth rate was 43% in 1997 over the prior year with net income of $795.8 million.