Nike Financial Analysis: Ratios, Stock, and Industry Comparison
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.
- Introduction: Purpose and scope of Nike financial analysis
- Company Overview: Nike and Skechers operations and business profiles
- Nike's Vulnerability to Financial Threats: Liquidity and leverage ratios assess recession resilience
- Financial Performance: Nike vs. Skechers: Profitability and asset management ratio comparisons
- Stock Price Analysis: Stock price trends and EPS growth outlook
- Conclusion: Summary of Nike's strong overall financial position
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What makes this paper effective
- It grounds every claim in a specific calculated ratio, making arguments verifiable and precise rather than impressionistic.
- The consistent competitor benchmarking against Skechers gives the analysis comparative depth, allowing readers to judge Nike's performance in industry context rather than in isolation.
- The paper moves logically from short-term solvency to long-term leverage to profitability to stock outlook, creating a coherent analytical arc from stability to growth potential.
Key academic technique demonstrated
The paper exemplifies ratio-based financial analysis as a structured evaluation method. Each ratio is first defined using a cited textbook source, then calculated and interpreted, and finally compared against a peer firm. This definition–calculation–interpretation–comparison pattern is a reliable technique for undergraduate finance papers and demonstrates how to use quantitative data to support qualitative conclusions about managerial effectiveness and investor value.
Structure breakdown
The paper opens with a brief framing introduction and company profiles for both Nike and Skechers. It then separates financial evaluation into two distinct analytical blocks: a vulnerability/solvency assessment (current ratio, debt ratio, debt-to-equity) and a broader performance comparison across six ratios over three years. A dedicated stock section bridges financial ratios to investor implications, and a short conclusion synthesizes the findings. Financial statement appendices are included, providing full transparency of the underlying data.
Introduction
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.
Company Overview
"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.
Nike's Vulnerability to Financial Threats
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).
Conclusion
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.
References
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.
Yahoo! Finance. (2013, June 12). Nike Inc. (NKE) — NYSE. Retrieved June 12, 2013, from
Yahoo! Finance. (2013, June 12). Skechers USA Inc. (SKX) — NYSE. Retrieved June 12, 2013, from
Appendix
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
Intangible Assets: 535,000 | 487,000 | 467,000
Deferred Long-Term Asset Charges: 919,000 | 894,000 | 873,000
Total Assets: 15,465,000 | 14,998,000 | 14,419,000
Liabilities — Current Liabilities
Accounts Payable: 3,708,000 | 3,571,000 | 3,218,000
Short/Current Long-Term Debt: 157,000 | 387,000 | 146,000
Total Current Liabilities: 3,865,000 | 3,958,000 | 3,364,000
Long-Term Debt: 228,000 | 276,000 | 446,000
Deferred Long-Term Liability Charges: 991,000 | 921,000 | 855,000
Total Liabilities: 5,084,000 | 5,155,000 | 4,665,000
Stockholders' Equity
Common Stock: 3,000 | 3,000 | 3,000
Retained Earnings: 5,588,000 | 5,801,000 | 6,095,000
Capital Surplus: 4,641,000 | 3,944,000 | 3,441,000
Other Stockholder Equity: 149,000 | 95,000 | 215,000
Total Stockholder Equity: 10,381,000 | 9,843,000 | 9,754,000
Net Tangible Assets: 9,645,000 | 9,151,000 | 9,099,000
Period Ending: Dec 30, 2012 | Dec 30, 2011 | Dec 30, 2010
Total Revenue: 1,560,321 | 1,606,016 | 2,006,868
Cost of Revenue: 876,995 | 982,268 | 1,094,962
Gross Profit: 683,326 | 623,748 | 911,906
Selling, General and Administrative: 667,293 | 721,164 | 719,734
Non-Recurring: — | 43,935 | 1,172
Operating Income or Loss: 15,215 | (141,351) | 191,000
Total Other Income/Expenses Net: 8,582 | 18,157 | 8,625
Earnings Before Interest and Taxes: 23,797 | (123,194) | 199,625
Interest Expense: 13,324 | 7,853 | 3,022
Income Before Tax: 10,473 | (131,047) | 196,603
Income Tax Expense: (39) | (63,467) | 60,198
Minority Interest: (1,000) | 96 | (257)
Net Income from Continuing Operations: 9,512 | (67,484) | 136,148
Net Income: 9,512 | (67,484) | 136,148
Net Income Applicable to Common Shares: 9,512 | (67,484) | 136,148
Period Ending: Dec 30, 2012 | Dec 30, 2011 | Dec 30, 2010
Assets — Current Assets
Cash and Cash Equivalents: 325,826 | 351,144 | 233,558
Net Receivables: 247,719 | 221,795 | 287,427
Inventory: 339,012 | 226,407 | 398,588
Other Current Assets: 27,755 | 88,005 | 53,791
Total Current Assets: 940,312 | 887,351 | 973,364
Property, Plant and Equipment: 362,446 | 376,446 | 293,802
Intangible Assets: 3,242 | 4,148 | 7,367
Other Assets: 17,833 | 13,413 | 17,938
Deferred Long-Term Asset Charges: 16,387 | 12,323 | —
Total Assets: 1,340,220 | 1,281,888 | 1,304,794
Liabilities — Current Liabilities
Accounts Payable: 278,448 | 247,994 | 276,980
Short/Current Long-Term Debt: 14,093 | 60,472 | 30,330
Total Current Liabilities: 292,541 | 308,466 | 307,310
Long-Term Debt: 128,517 | 76,531 | 51,650
Deferred Long-Term Liability Charges: — | 73 | 4,364
Minority Interest: 43,120 | 39,966 | 37,631
Total Liabilities: 464,251 | 429,327 | 396,591
Stockholders' Equity
Common Stock: 50 | 49 | 48
Retained Earnings: 542,041 | 532,529 | 600,013
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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