Graduate School of Business Administration
University
Version
2.0 of Virginia
UVA-F-1353
Version 2.0
Nike, Inc.: Cost of Capital
On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual fund management firm, pored over analyst write-ups of Nike, Inc., the athletic shoe manufacturer.
Nike’s share price had declined significantly from the start of the year. Kimi was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies with an emphasis on value investing. Its top holdings included
ExxonMobil, General Motors, McDonald’s, 3M and other large-cap, generally old-economy stocks. While the stock market declined over the last 18 months, NorthPoint
…show more content…
Since she was about to go into a meeting, she requested her new assistant, Joanna Cohen, to estimate Nike’s cost of capital.
Joanna immediately gathered all the data she thought she might need (Exhibits 1 through 4) and set out to work on her analysis. At the end of the day, she submitted her cost of capital estimate and a memo (Exhibit 5) explaining her assumptions to Ms. Ford.
-3-
UVA-F-1353
Exhibit 1
Nike, Inc.: Cost of Capital
Consolidated Income Statements
Year Ended May 31
(In millions except per share data)
1995
1996
1997
1998
1999
2000
2001
Revenues
Cost of goods sold
Gross profit
Selling and administrative
Operating income
Interest expense
Other expense, net
Restructuring charge, net
Income before income taxes
Income taxes
Net income
4,760.8
2,865.3
1,895.6
1,209.8
685.8
24.2
11.7
649.9
250.2
399.7
6,470.6
3,906.7
2,563.9
1,588.6
975.3
39.5
36.7
899.1
345.9
553.2
9,186.5
5,503.0
3,683.5
2,303.7
1,379.8
52.3
32.3
1,295.2
499.4
795.8
9,553.1
6,065.5
3,487.6
2,623.8
863.8
60.0
20.9
129.9
653.0
253.4
399.6
8,776.9
5,493.5
3,283.4
2,426.6
856.8
44.1
21.5
45.1
746.1
294.7
451.4
8,995.1
5,403.8
3,591.3
2,606.4
984.9
45.0
23.2
(2.5)
919.2
340.1
579.1
9,488.8
5,784.9
3,703.9
2,689.7
1,014.2
58.7
34.1
921.4
331.7
589.7
1.36
294.0
1.88
293.6
2.68
297.0
1.35
296.0
1.57
287.5
Growth (%)
Revenue
Operating income
Net income
35.9
42.2
38.4
42.0
41.5
International Equity Index Fund of State Street Global Advisors, with the same market index as that of the Amoco pre-merger plan.
firm Tower Brook Capital Partners. Some strengths of the company are its great pricing and excellent
As of 2005, Value Trust had outperformed its benchmark index, the S&P 500, for 14 years consecutively. Given that the next longest period of sustained performance was only half as long, 14 consecutive years of excellent performance set a record as the longest streak of success for any manager in the mutual-fund industry. The average annual total return for the past 15 years was 14.6%, which was higher than the S&P’s 500 by 3.67%. Value Trust had 36 holdings, 10 of which accounted for nearly 50% of the fund’s assets. Morningstar gave Value Trust a five-star rating.
"Courage isn't an absence of fear. It's doing what you are afraid to do. It's having the power to let go of the familiar and forge ahead into new territory." ~John Maxwell. In To Kill a Mockingbird, Scout (Jean Louise Finch), Jem (Jeremy Atticus Finch), and Atticus Finch display acts of valor that contribute, and in some cases encourage their rectitude. Harper Lee demonstrates that acting courageously can lead to an improved, sustained, or newly developed personal integrity.
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.
Apparently, the issue of Nike’s case is to control and check the calculation cost of capital done by Joanna Cohen who is the assistant of a portfolio manager at NorthPoint Group. But I am willing to tell you that it can be a complex case in which we can doubt about sensitivity analysis done by Kimi Ford (portfolio manager) too. Because her assumptions such as Revenue Growth Rate, COGS / Sales,
clear assessment of the financial health of the company: NIKE International. Just knowing that this company chose a symbol that references the winged goddess of victory seems to have been a premonition for the designer of the ‘swoosh’ as well as the founder, Phil Knight, of NIKE. (Hinker,)
sale of Nike’s high-margin products to high-end customers. Regardless of the low cost of the World Shoes, they
Using the tax rate of 35% plus state taxes of 3%, cost of debt becomes 4.3%*(1-0.38) = 0.266 = 2.7%
Her forecast showed that, at a discount rate of 12%, Nike was overvalued at its current share price of $42.09 (Exhibit 2). However, she had done a quick sensitivity analysis that revealed Nike was undervalued at discount rates below 11.17%. Because she was
I grumble as I clean the attic , angry because I have to do it, so I figure I'll go through the stuff while doing it to keep myself interested. I find a box labeled FRAGILE DO NOT TOUCH so of course I have to touch. I open the box and am quite disappointed to find a crap ton of glass balls. I pick one up with a name on it. I start picking up more to see if the rest have names and I'm not disappointed this time. Each one has a different name on it. My arms become too full and I accidentally drop one and it busts, then out of nowhere there is this bright purple smoke that smells like old garbage. I cough and cover my nose. When the smoke clears away I see a man standing there. He's about 6 feet tall and has a expensive looking black suit
is not this kind of companies. If we want to use the data of dividends, we need to consider the growth rate and future potential changes of dividend. In a word, we don’t think DDM is fit for Nike’s case.
Kimi Ford is a portfolio manager at NorthPoint Group, a mutual-fund management firm. She is evaluating Nike, Inc. (“Nike”) to potentially buy shares of their stock for the fund she manages, the NorthPoint Large-Cap Fund. This fund mostly invests in Fortune 500 companies, with an emphasis on value investing. This Fund has performed well over the last 18 months despite the decline in the stock market.
Similarities & Differences: Within the financial statement of Nike, Inc. there are tremendous similarities due to the consistency as well efficiency of the conduction of business. However, with these similarities is a fair deal of differences due to economic stability as well as the adoption product ideas and innovative methods that aid Nike to continue for the better of the company: by reaching new levels of sustainability as they enhance product performance, by developing, more meaningful connections with consumers, and by presenting their products in compelling experiences at retail. The annual reports of 2010 to 2014 clearly distinguish the letter to shareholders in the same placement but the content with each year are not similar by any means; within 2010, they created six new strategic geographies to focus their effort where passion and culture of sport are strongest. Nike pushed forward an aggressive retail agenda in store and online. Revenue at $19 billion the previous year went down 1 percent under EPS and future orders. Their income from other operation contributed more than $2.5 billion in revenue and generated $2.8 billion in free cash flow from operations and had $5 billion in cash and short-term investments on their balance sheet. Revenue from direct to consumer increased 12% to near $2.5 billion. Gross margins came in at 46.3 percent for the year. That was the year of the World cup, whereby they showed tremendous acceleration they generated in the back of
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.