Long-term corporate goals: growth, profitability, and shareholder returns

Nike

How important is the setting of long-term financial goals/objectives in the financial planning of the Nike Inc. Please explain your reasoning

Long-term financial planning is beneficial for all stakeholders both directly and indirectly involved with Nike Inc. Long-term financial planning is what has allowed Nike to be considered the preeminent sporting brand in the world (Schwartz, 2010) Too often, the emotional characteristics of the marketplace place undue financial pressures on a particular organization. One only needs to look at the current global environment to see the implications on short-term gyrations on business sentiments. These sentiments serve as a self-fulfilling prophecy of sorts that distorts the long-term financial objectives of a company with the short-term business initiatives in which it undertakes. By focusing primarily on the long-term, companies are better prepared to effectively navigate the natural vicissitudes of short-term market fluctuation. Nike is a prime example of this long-term focus. As a consumer products company, Nike must attract and retain a loyal customer base. Research has proven that loyal customers are far more profitable than then price conscious counterparts. As such, Nike Inc. must focus on the long-term goal of expanding its demographic reach and market share to subsequently capture these lucrative customers. This is very important as Nike continues to grow both shareholder value and the intrinsic value of the company.

Macroeconomic circumstances, particularly those that are short-term in nature, place an undue pressure on financial performance and market valuations. These negative sentiments often expand to consumers who, listening to the overly pessimistic view, often reframe from economic friendly action. Our current economic circumstances are a prime example of this phenomenon. Currently, our nation is not undergoing a financial crisis, but instead it is in the midst of a confidence crisis. Consumers are not confident in the short-term prosperity of American. The impending fiscal cliff, the European debt crisis, a slowdown in china, economist estimates of future growth in GDP, and the uncertainty regarding the election all place downward pressures on consumer sentiments. These uncertainties regarding sentiments directly correlates to the Nike Inc. As consumers are fearful in regards to the short-term prosperity of America and the global economy, then instinctively reframe from purchasing discretionary items. Instead, being fearful of the future, consumers save more, pay down debt, and wait until the future is more certain.

It is because of these short-term gyrations in sentiments that Nike should focus on the long-term implications of its financial planning. Even though consumers are not purchasing as many Nike shoes doesn't mean the company should discontinue operations. Instead, it is my contention that the company continue to invest heavily in this favorable environment to ensure future profitability. The recession will not last forever. Under this assumption, long-term financial planning will allow the company to prosper in better economic circumstances. This is particularly true as competitors leave the market place under intense financial strain. By planning for the long-term, Nike can continue to capture valuable market share while also allowing the company to attract a large consumer base. Nike can capture valuable market share through its prominent and often inspiring marketing campaigns (Peters, 2009). Nike last year spent well over $1 Billion in marketing expense alone. Furthermore, through long-term financial planning, the company can remain focused on its core objectives as oppose to falling victim to the mass pessimism that pervades the market. This focus will provide the company with a competitive advantage relative to its less financially stable peers. By focusing on the key drivers of future business, while being cognizant of the short-term implications of their actions, Nike can position itself for future prosperity (Zabarenko, 2007). For example, Nike under its most recent quarterly report experienced higher than normal material costs in China. This resulted in a 12% decline in the stock price on the earnings announcement day alone. These material costs are part of the companies long-term focus on quality. Therefore, the company, was not focused on the short-term implications of its higher material costs, but instead on the long-term focus of a quality product. This focus, the company believes, will ultimately contribute to higher margins, and a more loyal customer base.