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Performance Analysis Report Nike

Contents Introduction 2 Business Model 3 Financial Issues and Risk Factors 4 Financial Position and Performance 6 Financial Ratios analysis 6 Discussion & Recommendations: 9 Conclusion: 10 References 11

Introduction

Nike, Inc., which was formerly known as Blue Ribbon Sports from 1964- 78, is an American sportswear company, which its headquarters located in Beaverton, Oregon. The company was initiated in 1964 as Blue Ribbon Sports. The company’s founder is Bill Bowerman, who was a track-and field couch at the University of Oregon. He founded the company in partnership with his former student Phil Knight (Wild, 2019). Today at the time of composing this report, the CEO and the president of the Company is John Donahoe. He supposed to steer the progressive growth of Nike Brand together with the company’s global business portfolio, including Jordan Brand, and Converse Inc. John was serving a Board member of Nike since 2014 before he eventually joined the company in the capacity of a CEO and President in 2020.

The key executive officers at Nike include but not limited to John Donahoe serving as the CEO/President of the company; Andy Champion-chief operating officer; Hilary Krane-EVP chief administrative offer and general counsel; Monique Matheson EVP, chief human resource officer; Heidi O’neil- President, consumer and market place, among others (Wild, 2019).

According to its current Form 10-K released in May 31, 2021, regarding securities registered as stipulated in Section 12 (G) of the Act; the company has stipulated some of the risks connected to their securities, investments and liquidity. In this case, they have suggested that their financial outcomes may be under siege supposing that some critical investments in businesses and operations will fail to yield the anticipated returns (Wild, 2019). This is to say, that from time to time, the company perhaps could invest in technology, the infrastructure of the business, new capabilities and businesses, product offering and manufacturing innovations, plus the widening of the current businesses, like the NIKE Direct operations, with a requirement of some substantial cash investments and management attention. With the objective of undertaking cost-effective investments, some of these investments have been highlighted to be subject of typical risks and uncertainties, which are intrinsically present in the development of the new business or in the widening of the already existing ones. Therefore, the failure of any of these critical investments to offer the anticipated outcome and profitability could have a ripple impact which is adverse in nature, on the company’s financial results and this can potential shift management attention from more profitable business operations.

Business Model

As of 2020, the organization operates in over 45 countries worldwide. They have excelled in generating value to itself and the fitness industry as a whole. To being with, the organization internally created value by devising a strong foresight, insight, and cross-sight. Their foresight propagates that they seek to elevate human potential in every possible way by bringing innovation and instilling inspiration to every athlete worldwide. Their insight lived up to their expectations as they are able to provide customers with the latest technology supplementing graphic printing and emotional branding, implemented in their plethora of offerings. Lastly, their cross-sight enabled them to identify complementarity singularly through several acquisitions, complementing their ranges and model. Some of them include converse for their casual footwear line, Hurley for watersport apparel and casual beachwear, etc.

Principally, the business model of Nike is grounded on production and sales of athletic and sports products, including the footwear, clothing, equipment plus some other services. All the things under one of the most known brand globally (Chen, 2020). John Joseph Donahoe who is the CEO and president of the company joined the position in January 2020. He is an American businessperson who earlier own worked for Brain & Company and was a board member at Nike since 2014.

As per the business model the organizations key activities include, research &development, manufacturing and distribution of footwear, apparel, sporting goods, equipment, etc. They deliver their products through third party distributors, licensees, online platforms and company owned retail stores. Their key partnerships comprise of their manufacturing contractors, who are spread over 3 countries, with the likes of Pou Shen Corporation of Taiwan, supplying their athletic and casual footwear. Whilst, PT pan brothers located in Indonesia and Eagle Nice International holdings of Hong Kong, manufacture Nike’s apparel. However, their most lucrative partnerships reside with widely populous athletes like Michael Jordan, Christiano Ronaldo, Lebron James, etc., and they are also immensely dependent on Apple Inc. for the manufacturing and production of their tracking chips, implanted in their footwear.

Financial Issues and Risk Factors

As already established from the current Form 10-K released in May 31, 2021, regarding securities registered as stipulated in Section 12 (G) of the Act; the company has stipulated some of the risks connected to their securities, investments and liquidity. In this case, they have suggested that their financial outcomes may be under siege supposing that some critical investments in businesses and operations will fail to yield the anticipated returns (Chen, 2020). This is to say, that from time to time, the company perhaps could invest in technology, the infrastructure of the business, new capabilities and businesses, product offering and manufacturing innovations, plus the widening of the current businesses, like the NIKE Direct operations, with a requirement of some substantial cash investments and management attention. With the objective of undertaking cost-effective investments, some of these investments have been highlighted to be subject of typical risks and uncertainties, which are intrinsically present in the development of the new business or in the widening of the already existing ones. Therefore, the failure of any of these critical investments to offer the anticipated outcome and profitability could have a ripple impact, which is adverse in nature, on the company’s financial results and this can potential shift management attention from more profitable business operations.

According to one of the article published by the businessinsider.com, the company is facing three risks that could place huge hurdles to its global domination and these risks are: athletic wear goes out of fashion, Under Armour is progressively growing; and China is disappointing (Almani & Nobanee, 2020). For instance, when we focus on the second hurdle, Under Armour has recently grown into a giant sportswear company in the United States- in fact, the second-largest just behind Nike. The company is today boasting of more than 3 billion dollars in revenue just of last year. This brand is however still having only a fraction of Nike’s 28 billion dollar in annual revenue.

However, the company’s sneakers with Spokesman Stephen Curry, is formidable product in the market, proving the fact that it has real potential as a sneaker brand. The company is increasingly making some of the critical savvy moves like the Curry partnership, and this is promising somewhat a progressive growth that would perhaps put some big dent in Nike’s business (Almani & Nobanee, 2020).

Financial Position and Performance

From the analysis of the financial position and performance of Nike in the past three years shows that the brand does not only invest heavily but also make immense profits. In 2016 and 2017, for example, Nike had total assets of assets for the quarter ending November 30, 2021 were $38.917 billion, a 11.71% increase year-over-year. The total assets for 2021 were $37.74 billion, a 20.41% increase from $31.342 billion in 2020 and increase from $23.717 billion in 2019 which we increase 5.24% from 2018.

The corporation managed revenues of around $36,397, 000. Two trends are evident across these years. First, Nike has been increasing its spending on its businesses. In 2017, for instance, it expanded its assets by $1,505,000. The other trend is that its revenues have also been on the rise growing from $32, 376, 000 to $34, 350 000 from 2016 t0 2017 and $34, 350 000 to $36,397, 000 from 2017 to 2018.

Financial Ratios analysis

Current and conventional current ratio for the company from perhaps 2010 to 2021. Current ratio is known to be a liquidity ratio that is quantifying the company’s ability to pay for its short term obligations. The liquidity ratios are part of the financial analysis which assist in analyzing information about the ability of a firm to pay its debts which are short term without involvement of external capital. If the ratio is close to one, it is considered good as the company can pay the debt obligations using its own capital. There are three major liquidity ratios Current ratio, Quick Ratio and Cash Ratio, the following table shows the formulas of the ratios.

Metrics 2018 2019 2020
Current asset 15134 16525 20556
Current Liabilities 6040 7866 8284
Inventory 5261 5622 7367
Cash 2754 2108 3765
Cash equivalents 4249 4466 8348
cash sum 7003 6574 12113
current asset – inv 9873 10903 13189

 

Liquidity Ratios 2018 2019 2020
Current Ratio 2.51 2.1 2.48
Quick Ratio 1.63 1.39 1.59
Cash Ratio 1.16 0.84 1.46

 

 

The above graph depicts the liquidity ratios of Nike. It is quite evident from the trend lines of ratios that there was a drop in the overall liquidity capability of Nike in 2019 but in 2020 it was again to the normal range; however, the current ratio was good in 2019.

Management efficiency Ratios:

There are some ratios which are associated with efficiency in managing assets of the firm. Like the asset turnover ratio, this ratio indicates how affectively the assets were utilized in generating sales from them. The other one is inventory turnover ratio, it depicts the days needed to convert inventory into sales. There are also working capital ratios which shows which portray firm’s efficiency in regard of doing sales and inventory

 

Metrics 2018 2019 2020
Assets 22536 23717 31342
Revenue 36397 39117 37403
Cost of goods sold 31952 34345 34693
Inventory 5261 5622 7367
Ac Payable 2279 2612 2248
Ac Receivable 3498 4272 2749
Management efficiency Ratios
Asset turnover ratio 1.615 1.649 1.193
Inventory turnover ratio 6.1 6.1 4.7
DIO (Days inventory outstanding) 60 60 78
DPO (Days payable outstanding) 26 28 24
DSO (Days sales outstanding) 35 40 27

 

 

From the above analysis it is clear that the ratios declined in these three year gradually. its is good for inventory turnover as the firm is getting efficient in terms of inventory management but for asset turnover it is slightly concerning because the organization is not utilizing its assets to make sales as it was doing in precious years.

Metrics 2018 2019 2020
Assets 22536 23717 31342
Debt 3468 3464 9406
Liability 12724 14677 23287
Equity 9812 9040 8055
debt+equity 13280 12504 17461
Solvency Ratios
Debt to asset 15% 15% 30%
Debt to equity 35% 38% 117%
Debt to capital 26% 28% 54%

 

As it can be seen that the ratios increased in these years gradually. Generally, it can be inferred from this information that there is much debt involved in the company or external credit revolving as compared to previous years.

Metrics 2018 2019 2020
Net Income 3966 4029 2539
Total Equity 9812 9040 8055
Total assets 22536 23717 31342
Sales 36397 39117 37403
Return ratios
ROE 40% 45% 32%
ROA 18% 17% 8%

 

The return ratios of Nike has much better status. The Return on equity however rose a little to 45 percent from 40 percent in 2019 but overall the trend shows decline in the return ratios

Discussion & Recommendations:

The liquidity ratios of Adidas and Nike for the years 2018, 2019 and 2020. The liquidity standing of both organizations fall in the good sector as the values are closer and above to 1.0, the overall situation of Nike is better than Adidas as it’s values are almost double than Adidas.in 2019 the cash was a little less than the current liabilities that is why the cash ratio in that year was less than 1.0.

Analyzing asset turnover ratio for both firms it is quite clear that these both organizations did well in using their assets in generating sales. both have asset turnover ratio more than except for Adidas in 2020 where it lagged at 0.93 which was still not bad but comparing it to the trend it was some short. The inventory turnover ratio is also good for these firms but Adidas is in better position as its days are less than Nike. For DIO Nike has advantage having less days than Adidas in containing inventory before making sales from it. The DPO has depicted that Nike has advantage in this ratio too as it has been able to pay the payable outstanding in lesser days than Adidas. The DSO is also showing good for Nike because the data shows that Nike has lesser days in collecting account receivables.

The solvency ratios showed that both organizations have circulated the external debt in the organization for operations and investments. With time the debt was increased and it can be inferred that it must be due to the purpose of growth in the industry.

The return ratios of both organizations are good, but the Nike has much better status than Adidas. The return on equity of Nike is almost double than that of Adidas. If we analyze the ROA Nike has much better returns in this case too.

By the DuPont analysis we can see that for Adidas the lowest ROE was in 2020 which was 7 percent, seeing the values of variables it is evident that the efficiency and profitability were lowest in that years that is why the ROE wepercent.28 percent to 7 percent. In case of Nike the lowest ROE was also in the year 2020, it was 32 percent. By analyzing the three variables the lowest value came out to be of profitability 7 percent and efficiency 1.19 as compared to previous years.

The stock price of Adidas is better than Nike, seeing dividend yield it is clear that Adidas is paying more dividend of its earning as compared to Nike. The market cap is in millions; the value of Nike is more than Adidas as current market worth.

Conclusion:

To conclude the document, we can say that the financial analysis has allowed us to look deep down the number of both organizations. The overall position of Nike was slightly better than Adidas. However, the data was of US market so it cannot be generalized for the whole global markets of these two multinational giants.

 

 

 

References

Almani, M., & Nobanee, H. (2020). Financial Statement Analysis of NIKE. Available at SSRN 3675026.

Chen, M. (2020). Financial performance analysis: a case study of Nike (Doctoral dissertation).

Gibson, C. H. (2012). Financial reporting and analysis. Cengage Learning.

Nica, I., Chiriță, N., & Ionescu, Ș. (2021). Using of KPIs and Dashboard in the analysis of Nike company’s performance management. Theoretical & Applied Economics28(1).

Ranjan, W. (2016). The Financial Performance Analysis of Nike Inc: with Special Reference Year 2015 Annual Report.

Wild, J. (2019). Financial Accounting: Information for Decisions, 9e.

Feldman, D. S. (1995). Asset management: Here to stay. Cornell Hotel and Restaurant Administration Quarterly36(5), 36-51.

Sridharan, U. V., Caines, W. R., & Patterson, C. C. (2005). Implementation of supply chain management and its impact on the value of firms. Supply Chain Management: An International Journal.

Piller, F. T., Lindgens, E., & Steiner, F. (2012). Mass customization at Adidas: Three strategic capabilities to implement mass customization. Available at SSRN 1994981.

Zhou, X. (2014). Financial Analysis of Nike, Inc. Company.

 

 

https://www.macrotrends.net/stocks/charts/NKE/nike/shares-outstanding

https://finance.yahoo.com/quote/ADDYY/history? period1=1514764800&period2=1623801600&interval=1mo&filter=history&frequency=1mo&in cludeAdjustedClose=true

https://www.investing.com/equities/adidas-salomon-financial-summary https://www.investing.com/equities/nike-income-statement https://report.adidas-group.com/2020/en/servicepages/downloads.html