This paper presents a comprehensive financial analysis of Nike, Inc., benchmarked against competitor Skechers USA, Inc. across the 2010–2012 fiscal period. The analysis begins with a company overview of both firms, then evaluates Nike's vulnerability to recession and rising interest rates through liquidity and leverage ratios. It proceeds to examine profitability metrics (gross profit margin, return on assets, return on equity), asset management ratios (receivables turnover, inventory turnover, total asset turnover), and stock price trends including earnings per share. The paper concludes that Nike demonstrates strong financial health, efficient asset utilization, and favorable prospects for continued shareholder returns.
The relevance of analyzing the financial stability and health of a company cannot be overstated, especially when it comes to determining its future performance. This paper undertakes an in-depth financial analysis of Nike, a well-known footwear, equipment, and apparel designer.
In conducting this analysis, the paper describes the company and its operations in significant detail, evaluates its vulnerability to financial threats, identifies and discusses its financial trends, and considers how its stock is likely to perform going forward. To further evaluate Nike's financial performance, the analysis also incorporates a comparison with Skechers USA, Inc. This comparison helps determine how well Nike is performing within its industry. As a direct Nike competitor, Skechers operates in the same sector — the Textile: Apparel Footwear and Accessories industry.
"Nike, Inc., together with its subsidiaries, engages in the design, development, marketing, and sale of footwear, apparel, equipment, and accessories for men, women, and children worldwide" (Yahoo! Finance, 2013). Founded by Bill Bowerman and Philip Knight, Nike has built a name for itself as a leading and fashionable brand with an almost fanatical customer base from across the world. Using its extensive distribution network, the company covers areas as far as Africa and the Middle East, and also supplies kit uniforms to athletic teams worldwide.
Headquartered in Oregon, Nike employs 44,000 full-time employees and offers its products in seven categories: running, basketball, football, men's training, women's training, Nike Sportswear, and action sports (Yahoo! Finance, 2013). It is important to note that Nike also has interests in a wide range of other products, including athletic bags, kids' products, sports accessories and apparel, performance items such as protective equipment, and digital devices (Yahoo! Finance, 2013). Although the company has historically relied on various retail outlets and partnerships, advances in technology and the growing popularity of e-commerce have led Nike to add internet sales to its sales channels. Accordingly, the company offers its products "through its retail stores and internet sales, as well as independent distributors, licensees, and sales representatives" (Yahoo! Finance, 2013). The company primarily targets athletes and urban youth. Nike's CEO at the time of this analysis was Mark G. Parker.
Given that Skechers USA, Inc. is used for comparison purposes throughout this discussion, a brief overview of the company's operations is warranted. In basic terms, Skechers USA, Inc. concerns itself with "the design, development, marketing, and distribution of footwear for men, women, and children" (Yahoo! Finance, 2013). Using predominantly celebrity-driven advertising, the company's brand image is largely stylish and trendy, meaning it primarily targets urban youth and fashion-conscious consumers. As Yahoo! Finance (2013) notes, the company had, as of early 2013, 116 concept stores, 118 factory outlet stores, and 61 warehouse outlet stores in the United States, as well as 36 concept stores and 18 factory outlets internationally.
To evaluate Nike's vulnerability to a recession and higher interest rates, this section examines the company's ability to settle its short-term financial obligations as well as its long-term solvency. This assessment is conducted through the computation of financial leverage and liquidity ratios.
Table 1: Key Solvency and Leverage Ratios (2012)
Current Ratio: 2.98 | Debt Ratio: 0.33 | Debt-to-Equity Ratio: 0.49
A current ratio of 2.98 indicates that Nike would have no difficulty settling its short-term obligations should they become due. A current ratio above 1.0 confirms that a firm's current assets are sufficient to cover its short-term liabilities. Given this high current ratio, Nike does not appear to have any current liquidity problems and is therefore likely to remain solvent during and after a recessionary period.
The debt ratio, which "measures the proportion of total assets financed by the firm's creditors" (Graham & Smart, 2011, p. 44), indicates that a high value signals heavy reliance on borrowed funds. Nike's debt ratio of 0.33 (33%) shows that less than half of its assets have been financed through debt. This lower proportion of debt relative to assets suggests a low level of financial risk. Given this minimal debt-load risk, Nike is likely to navigate a recession with relative ease. Furthermore, prevailing high interest rates are unlikely to affect the company adversely. A lower debt ratio also enhances Nike's ability to access additional loans for growth and expansion, since lenders are more willing to advance credit to businesses whose long-term solvency is not in question. This easier access to funds strengthens Nike's ability to withstand global competition by enabling the company to explore new markets, make strategic acquisitions, and develop new products.
Regarding the debt-to-equity ratio, Graham and Smart (2011, p. 44) observe that this ratio is useful for measuring a firm's financial leverage. A debt-to-equity ratio of 0.49 indicates that Nike's long-term debts were 49% as large as its shareholders' equity. This suggests the firm has not been overly aggressive in funding its operations with debt, and as a result, Nike's earnings are not expected to be highly volatile in response to rising interest rates.
It should also be noted that Nike's commitment to continuous product improvement could further strengthen its ability to withstand global competition. According to the company, Nike is fully committed to innovation (Nike, 2013). It is through this core commitment that the company aims to maintain its leadership position in the industry (Nike, 2013).
This section evaluates Nike's financial performance using profitability ratios, asset management ratios, and debt ratios, drawing comparisons with Skechers across a three-year period.
Table 2: Selected Financial Ratios — Nike vs. Skechers (2010–2012)
Profitability Ratios
Gross Profit Margin — Nike: 0.43 (2012), 0.46 (2011), 0.46 (2010); Skechers: 0.44 (2012), 0.39 (2011), 0.45 (2010)
Return on Assets — Nike: 0.14 (2012), 0.14 (2011), 0.13 (2010); Skechers: 0.07 (2012), 0.10 (2010)
Return on Equity — Nike: 0.21 (2012), 0.22 (2011), 0.20 (2010); Skechers: 0.01 (2012), 0.15 (2010)
Asset Management Ratios
Receivables Turnover — Nike: 6.79 (2012), 6.05 (2011), 6.56 (2010); Skechers: 6.30 (2012), 7.24 (2011), 6.98 (2010)
Inventory Turnover — Nike: 4.08 (2012), 4.18 (2011), 5.00 (2010); Skechers: 2.59 (2012), 4.34 (2011), 2.75 (2010)
Total Asset Turnover — Nike: 1.56 (2012), 1.39 (2011), 1.32 (2010); Skechers: 1.16 (2012), 1.25 (2011), 1.54 (2010)
Using these figures, it is possible to assess Nike's financial stability and projected performance. Over the three-year period, Nike's gross profit margin has been relatively stable and has not fluctuated significantly — unlike Skechers, which experienced a notable dip in 2011. The gross profit margin, as Moyer, McGuigan, Rao, and Kretlow (2012) explain, measures the relative profitability of a firm's sales after deducting cost of goods sold, thereby revealing how efficiently management controls production costs and pricing decisions. An inadequate gross profit margin signals an inability to cover operating expenses. Nike's most recent gross profit margin of 0.43 means the company retains $0.43 of every dollar in sales after deducting cost of goods sold. This figure is slightly lower than Skechers' 0.44 for the same period, suggesting Nike could benefit from measures aimed at reducing its production costs going forward.
The return on assets (ROA) ratio measures how effectively a firm uses its assets to generate profit. A high ROA is desirable, as it indicates greater profit generated per dollar of investment. During the most recent fiscal year, Nike posted an ROA of 14% compared to Skechers' 7%. Nike therefore substantially outperforms Skechers in converting investment into profit, reflecting a more effective management team. Nike's ROA has also improved slightly compared to 2010. Similarly, Nike's return on equity (ROE) of 0.21 in the most recent year significantly exceeded Skechers' ROE of 0.01, indicating that Nike's shareholders received substantially better returns on their invested capital. Nike's ROE has also trended upward over the three-year period, while Skechers' has declined sharply. These results suggest that Nike's profitability is impressive relative to its industry peer and that the company is likely to continue delivering above-market returns for its stockholders.
Regarding the receivables turnover ratio, Stickney, Weil, Schipper, and Francis (2010) note that this ratio measures how quickly a firm collects cash from credit sales. A higher ratio is preferred since a low ratio implies inefficiency in collecting accounts receivable. In the most recent fiscal year, Nike's receivables turnover ratio exceeded that of Skechers, demonstrating greater efficiency in collections. The improvement from 2011 to 2012 also suggests that Nike tightened its credit policies to ensure timelier collection of outstanding balances.
The inventory turnover ratio, which "provides a measure of how quickly a firm sells its goods" (Graham & Smart, 2011, p. 42), is another indicator of operational health — a low ratio suggests weak sales. Nike's inventory turnover of 4.08 in the most recent year compared favorably to Skechers' 2.59, indicating stronger sales performance. Should this trend continue, Nike is well-positioned to deliver higher shareholder returns going forward.
Finally, the total asset turnover ratio "indicates the efficiency with which a firm uses all its assets to generate sales" (Graham & Smart, 2011, p. 43). While Nike's total asset turnover ratio increased steadily over the three years under review — from 1.32 in 2010 to 1.56 in 2012 — Skechers' ratio declined over the same period. This rising trend at Nike reflects improving efficiency in asset utilization to drive sales revenue, and it strongly suggests that Nike's profit margin will continue to grow.
Nike's stock price has risen steadily, from a low of $36.19 on May 28, 2010, to $42.31 on May 27, 2011, to $54.39 on May 25, 2012 (MorningStar, 2013). In addition, Nike has consistently increased its earnings allocated to each outstanding common share over this period, with earnings per share (EPS) of $1.93, $2.195, and $2.365 for 2010, 2011, and 2012, respectively (NASDAQ, 2013). This consistent growth in EPS signals that Nike's stock is likely to perform even better going forward.
The type of investor most likely to be attracted to this stock is the value investor, given the sustained upward trajectory the stock has exhibited over time. Value investors typically seek stocks with a below-average price-to-earnings ratio. To further improve stock performance, Nike's management could consider share buybacks, expense reductions through elimination of redundant positions, and enhanced earnings through effective resource management. The latter two measures would not only increase revenues but also improve earnings per share, making the stock even more attractive to prospective investors.
Based on the analysis presented, Nike's current financial performance is largely impressive. In addition to having a competent management team — as evidenced by its strong return on assets — the company has consistently delivered healthy returns for its stockholders over the three-year period examined. In the final analysis, Nike is well-positioned to continue performing strongly into the future.
Graham, J. R., & Smart, S. B. (2011). Introduction to Corporate Finance (3rd ed.). Mason, OH: Cengage Learning.
MorningStar. (2013). Nike, Inc. Class B NKE. Retrieved June 13, 2013, from
Moyer, R. C., McGuigan, J. R., Rao, R. P., & Kretlow, W. J. (2012). Contemporary Financial Management (12th ed.). Mason, OH: Cengage Learning.
NASDAQ. (2013, June 13). Nike, Inc. Revenue & Earnings Per Share (EPS). Retrieved June 13, 2013, from
Nike. (2013). History and Heritage. Retrieved June 12, 2013, from http://nikeinc.com/pages/history-heritage
Stickney, C. P., Weil, R. L., Schipper, K., & Francis, J. (2010). Financial Accounting: An Introduction to Concepts, Methods, and Uses (13th ed.). Mason, OH: Cengage Learning.
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Period Ending: May 30, 2012 | May 30, 2011 | May 30, 2010
Total Revenue: 24,128,000 | 20,862,000 | 19,014,000
Cost of Revenue: 13,657,000 | 11,354,000 | 10,214,000
Gross Profit: 10,471,000 | 9,508,000 | 8,800,000
Selling, General and Administrative: 7,431,000 | 6,693,000 | 6,326,000
Operating Income or Loss: 3,040,000 | 2,815,000 | 2,474,000
Total Other Income/Expenses Net: (54,000) | 33,000 | 49,000
Earnings Before Interest and Taxes: 2,986,000 | 2,848,000 | 2,523,000
Interest Expense: 3,000 | 4,000 | 6,000
Income Before Tax: 2,983,000 | 2,844,000 | 2,517,000
Income Tax Expense: 760,000 | 711,000 | 610,000
Net Income from Continuing Operations: 2,223,000 | 2,133,000 | 1,907,000
Net Income: 2,223,000 | 2,133,000 | 1,907,000
Net Income Applicable to Common Shares: 2,223,000 | 2,133,000 | 1,907,000
Period Ending: May 30, 2012 | May 30, 2011 | May 30, 2010
Assets — Current Assets
Cash and Cash Equivalents: 2,317,000 | 1,955,000 | 3,079,000
Short-Term Investments: 1,440,000 | 2,583,000 | 2,067,000
Net Receivables: 3,554,000 | 3,450,000 | 2,899,000
Inventory: 3,350,000 | 2,715,000 | 2,041,000
Other Current Assets: 870,000 | 594,000 | 873,000
Total Current Assets: 11,531,000 | 11,297,000 | 10,959,000
Property, Plant and Equipment: 2,279,000 | 2,115,000 | 1,932,000
Goodwill: 201,000 | 205,000 | 188,000
"Profitability and asset management ratio comparisons"
"Stock price trends and EPS growth outlook"
Capital Surplus: 336,278 | 320,877 | 303,877
Other Stockholder Equity: (2,400) | (894) | 4,265
Total Stockholder Equity: 875,969 | 852,561 | 908,203
Net Tangible Assets: 872,727 | 848,413 | 900,836
Note: All figures in thousands of USD unless otherwise stated. All financial statements sourced from Yahoo! Finance.
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