Nike Cost of Capital Case

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.

Based on the suggestion that the focus should be on market values, compute the weights of debt, preferred stock, and common stock.

Nike’s net accounts receivable had increased from $2,494.7 million on May 31, 2007 to $2,795.3 million on May 31, 2008. They has been dealing with a higher accounts receivable balance as a result of a longer collection cycle, reflecting a more challenging retail environment experienced by their customers in the EMEA and U.S.

Today Nike Inc is the largest manufacturer of sports footwear, apparel and equipment with worldwide revenue in excess of $25 billion in 2012 under various labels including Nike, Nike Golf, Converse and Hurley. Seventy percent of the company’s value is derived from footwear and apparel sold under the main brand Nike with Nike footwear commanding a market share

Using these figures, we can now find the market value of Nike Inc., and the company’s capital structure.

The debt/equity ratio for Boeing is provided in exhibit 10, 0.525, from where we can infer the weights of both debt and equity.

7. Debt to capitalization = Long-term Debt in Balance Sheet / Long term debt + Net Assets in

Market value proportions of: Debt = $1,147,200 / $4,897,200 = 23.4% Pref. Share = $1,250,000 / $4,897,200 = 25.5% Common equity = $2,500,000 / $4,897,200 = 51.1%

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.

Weights of Debt and equity are 8.3 and 91.7%. Now, plugging all the values in, we can derive company’s Weighted Average Cost of Capital.

Another error made by Cohen in computing Nike’s WACC, was her use of book-values, instead of market values, to calculate the weights of debt and

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,)

Because the firm policy had been adopted that funded debt should represent approximately 50% of total capital. So the weight of Debt and Equity are 50% respectively. The weights Pioneer used are correct.

Weight of Equity = 71%; Equity Cost of Capital = 12%; Weight of Debt = 29%; Debt Cost of Capital = 4.55%

And we calculated the weight of debt which was Weight of debt for P&S= [(13.1%+5.3%)/2]= 9.2%