Sources of Funds

NIKE Sources of Funds What are the best sources of raising funds that the financial managers of the Nike Inc. can use? Why? In contrast to smaller entities, larger corporations often have far more available sources of revenue from which to raise capital. Instead of borrowing from the bank, seeking angel investors, or asking for help from friends and families, corporations can sell bonds: a "bond is a written promise to pay back a specific amount of money at a certain date or dates in the future.

In the interim, bondholders receive interest payments at fixed rates on specified dates. Holders can sell bonds to someone else before they are due" (How corporations raise capital, 2013, U.S. Department of State). Many investors prefer bonds because of the greater security they offer as investments, even though the rate of return is lower. Unlike stocks, if a company experiences financial difficulties, because the bond is a loan, the bond owner must be paid.

This requirement can also make issuing bonds difficult even for small corporations but for a large corporation like Nike bonds have many advantages. "Bonds are desirable for the company because the interest rate is lower than in most other types of borrowing. Also, interest paid on bonds is a tax deductible business expense for the corporation" (How corporations raise capital, 2013, American History). Even though interest must still be paid on the loan in the absence of profits, Nike can engage in risk mitigation if necessary to allow for initial losses.

Also, bond-selling does not dilute ownership, unlike selling stock. As an incorporated entity, Nike can also sell preferred or common stock to raise funds. While some companies shy away from issuing stock for fear of losing control over the entity, Nike is a sufficiently large company with a diverse range of shareholders so this is of minimal concern. Because of its historic profitability, issuing either form of stock is an attractive option for prospective buyers of Nike: "some companies pay large dividends, offering investors a steady income.

But others pay little or no dividends, hoping instead to attract shareholders by improving corporate profitability -- and hence, the value of the shares themselves" (How corporations raise capital, 2013, U.S. Department of State). Regardless of how it rewards shareholders, the prospect of Nike expansion is likely to attract investors, given that Nike has proven its ability to be profitable in the past. "If a company's financial health is good and its assets sufficient, it can create capital by voting to issue additional shares of common stock.

For a large company, an investment banker agrees to guarantee the purchase of a new stock issue at a set price" (How corporations raise capital, 2013, American History). However, "issuing too much stock diminishes the basic value of each share," so this would not be the sole way to raise funds for the proposed venture. Of course, Nike is not prevented from using ways of generating investment funds commonly practiced by smaller entities. For example, Nike is perfectly.