Nike Company Profile Analyzing the Term Paper

  • Length: 12 pages
  • Subject: Business
  • Type: Term Paper
  • Paper: #2873507

Excerpt from Term Paper :

This strategy of customization increases sales and profits per pair of shoes produced.

Successful Acquisitions and Partnerships

Nike acquired Official Starter Properties and Official Starter in later 2004. These two entities were the sole owners and licensors of the Starter, Team Starter and Asphalt brand names as well as master licensee of the Shaq and Dunkman brands (a line of athletic apparel, footwear and accessory products for the value retail channel). These two acquisitions and more like them are providing Nike with a broadened product strategy and the ability to better compete globally.

Threats

Launch of new technology marketing strategies and products by competitors

Nike faces significant competition from its two closest competitors, Adidas and Reebok, which recently released technologically superior footwear products. In Adidas continues to be the more active of the competitors, releasing Adidas 1, which is innovative in that it re-adjusts the shoe to the customer's foot depending on their size, pace, terrain and fatigue level. The Adidas 1 uses a sensor, a microprocessor and a motorized cable system to automatically adjust the shoes cushioning. Reebok's Pump shoe concept uses a self-regulating and inflating technology and provides an automatic custom forms to the consumers foot. Nike has just recently become competitively matched to these companies with their Apple iPod integration, where iPod users can get a measurement of how far they have run, According to Knight-Ridder (2006).

Rapid changes in customer preferences

Nike and all sports footwear and apparel companies are continually challenged with responding to customer preferences and the rapidly changing socioeconomic conditions prevailing in the economy.

Nike has made significant investments in their Voice of the Customer Programs to stay on top of these trends and anticipate them.

Growing Threat from low cost Chinese footwear products

The increasingly growing strength of Chinese footwear products are now flooding the European Union (EU) countries with Nike-like products and knock-offs, Citigroup (2006).

Rising and often unpredictable raw material prices

Nike's supply chain and its procurement operations focus on getting the best possible costs for raw materials including synthetic rubber, plastic compounds, leather, and metal hardware. As a result of rising oil prices, the price of synthetic rubber and plastic-based products Nike uses is continually increasing due to oil being $75 a barrel. The high dependence on oil-based products is a major threat for Nike.

Analysis of Findings

Five-Year Balance Sheet Comparison

Nike Corporation Balance Sheet Comparison

Cash & equivalents

Short-term investments

Accounts receivable, gross

Allowance for doubtful accounts

Accounts receivable, net

Finished goods

Work-in-progress

Raw materials

Inventories

Deferred income taxes

Prepaid expenses & other current assets

Total current assets

Land

Buildings

Machinery & equipment

Leasehold improvements

Construction in process

Gross property, plant & equipment

Less: accumulated depreciation

Property, plant & equipment, net

Identifiable intangible assets, net

Goodwill

Identifiable intangible assets & goodwill

Deferred income taxes & other assets

Total assets

Current portion of long-term debt

Notes payable

Accounts payable

Accrued compensation & benefits

Accrued fair value of derivatives

Accrued tax

Accrued endorser compensation

Accrued dividends payable

Accrued advertising & marketing

Other accrued expenses

Accrued liabilities

Income taxes payable

Total current liabilities

Corporate bond payable

Japanese yen note

Medium-term notes

Other long-term debt

Total long-term debt

Less current maturities

Long-term debt

Deferred income taxes & other liabilities

Redeemable preferred stock

Class A convertible common stock

Class B common stock

Capital in excess of stated value

Unearned stock compensation

Cumul translation adjustment & other income

Net deferred gain (loss) on hedge derivatives

Accumulated other comprehensive income (loss)

Retained earnings

Total shareholders' equity

Five Year Income Statement Analysis

Nike Corporation Annual Income Statement Comparison

As Reported Annual Income Statement

Revenues

Cost of sales

Gross margin

Selling & administrative expense

Interest expense, net

Other income (expense), net

Restructuring charge

Total costs & expenses

Income before income taxes - United States

Income before income taxes - Foreign

Income (loss) before income taxes

Total current provision for income taxes

Total deferred prov (benef) for income taxes

Income taxes

Income (loss) before accounting changes

Net income (loss)

Five Year Geographic Revenue Analysis

Nike Corporation Geographic Analysis

Revenues

Report Date

Americas

Asia Pacific

EMEA

Five Year Cash Flow Analysis

Nike Corporation Cash Flow Analysis

As Reported Annual Cash Flow

Net income (loss)

Cumulative effect of accounting change

Depreciation

Deferred income taxes

Amortization

Amort & oth income charges not affecting cash

Income tax benef fr exercise of stock options

Accounts receivable

Inventories

Prepaids & other current assets

Accounts pay, accruals & income tax pay

Net cash flows from operating activities

Purchase of short-term investments

Maturities of short-term investments

Additions to property, plant & equipment

Disposals of property, plant & equipment

Decrease (increase) in other assets

Increase (decrease) in other liabilities

Acquisition of subs-net assets acquired

Net cash flows from investing activities

Proceeds from long-term debt issuance

Reductions in lg-tm debt incl current portion

Increase (decrease) in notes payable

Proc fr exercise of stk opts & other stk iss

Repurchase of stock

Dividends-common & preferred

Net cash flows from financing activities

Effect of exchange rate changes

Net increase (decrease) in cash & equivalents

Cash & equivalents, beginning of year

Cash & equivalents, end of year

Interest expense paid, net

Income taxes paid

Five-year Financial Ratio Analysis

Nike Corporation Financial Ratio Analysis

Profitability Ratios

Return on Equity (%)

Return on Assets (%)

Return on Investment

Gross Margin

EBITDA of Revenue (%)

Operating Margin (%)

Pre-Tax Margin

Net Profit Margin (%)

Effective Tax Rate (%)

Liquidity Indicators

Quick Ratio

Current Ratio

Working Capital/Total Assets

Debt Management

Current Liabilities/Equity

Total Debt to Equity

Long-Term Debt to Assets

Asset Management

Revenues/Total Assets

Revenues/Working Capital

Interest Coverage

Cross-Industry Financial Analysis

Current Ratio - latest Debt/Total Assets - latest Effective Tax Rate - latest Gross Margin - latest Pre-tax Margin - latest Profit Margin - latest Quick Ratio - latest Return on Assets (ROA) - latest Return on Equity (ROE) - latest Total Liabilities/Equity - latest Company Name Peer Avg: 2.32 Peer Avg: 0.12 Peer Avg: 16.96 Peer Avg: 35.06 Peer Avg: 8.11 Peer Avg: 5.97 Peer Avg: 1.21 Peer Avg: 3.31 Peer Avg: 14.50 Peer Avg: 0.28 NIKE, Inc. 3.18 0.08-34.85-44.51-13.54 8.82 2.1-13.78-21.47 0.35 Achilles Corp. 1.4-0.05-22.97 2.22 1.34 0.08 1.53 3.38 0.93 Converse Inc. (DE) 0.38 0.49 -13.31 -- 0.17 -28.24-19.58 -1.52 Fujikura Rubber Ltd. (Japan) 2.29 0-23.43 6.95 4.02 0.21 4.5-7.08 0.41 Li Ning Company Ltd. 3.04-3.06-46.51-10.24 7.1-1.68 9.01-13.21 0.45 Pou Chen Corp 1.57 0.26-23.98-19.14-19.14 0.67-17.35-39.13 0.66 Reebok International, Ltd. 2.3-0.15-25.77-39.57 7.02 5.08 1.52 7.88-15.77 0.66 Sao Paulo Alpargatas S.A. 3.14 0.07 1.59-39.61-15.21-12.18 1.3-14.52-25.22 0.35 Saucony Inc. 3.52 0-40.75-41.08-10.65 6.25 3.26-10.82-15.17 0.35 Vans, Inc. 3.08 0.01-12.08-45.35 -9.89 -9.09 1.6 -12.36 -16.31 0.28 * all results are stated in U.S. Dollars Peer Grouping by: NAIC Peer Scope: worldwide

Evaluation and Analysis

In evaluating Nike, their challenges in EMEA (Europe) and their corresponding pricing strategies and inventory levels there, and consistency of growing gross contribution margin, both in absolute and percentage terms, in addition to the continual growth of Return on Assets relative to industry participants all point to Nike's ability to compete effectively using low-cost manufacturing and distributed supply chains globally. Despite the slowness in Europe however, Nike continues to find significant growth globally.

The financial analysis in this report also shows Nike, over the last five years, has accomplished significant Sales, General & Administration (SGA) expense controls, and as a result is well-poised to penetrate China and challenge its primary competitors in their host country. The slight rise in inventories is cause for concern, yet the company's strength in selling through its many outlets and distribution agreements will most likely alleviate any over-hang of these inventory positions.

Nike also is finding their branded product sales are up 12% over previous years and the focus on creating brands such as Jordan, which has lead revenue generation in 2005 and throughout the beginning of 2006, are what is also contributing to the highest growth regions of the world. These include Russia, Turkey, and South Africa, according to Prudential (2006). China's sales are also up 50% over the previous year, and the recent new product introductions and re-aligning of supply chains to deliver even greater competitive pricing and delivery in China is a central focus of the company in 2006. The challenges to growth however continue to be managing debt, keeping SG&A in its flat-lined growth rate, and aggressively growing through branded products and re-aligning of manufacturing and supply chains for emerging geographies.

Conclusions/Recommendations

Nike is well positioned to attain double-digit growth in revenues through 2007. The biggest challenges for the company center on localization strategies in countries which to this point have had sluggish sales. The financial discipline the company illustrates in its U.S. operations highlights the many efforts the company is making to keep SG&A expenses in line with their own stated forecasts of this key financial performance metric. The conclusion is that the growth of Nike relative to competitors needs to come from better internal execution than in massive price cuts and radical marketing.

Recommendations for Nike are as follows:

Continue to align production and supply chains…

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