Nike Cost Of Capital

1791 Words8 Pages
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.

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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

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