Financial Analysis of Nike

Table of Contents

Introduction1

Industry Analysis1

Financial Analysis3

Financial Ratios5

Working Capital5

Current Ratio5

Debt to Equity Ratio5

Net Margin (Profit Margin or Return on Sales) Ratio5

Horizontal and Vertical Analysis6

Impact of International Trade6

Risks of Company's International Trade9

Comparison of Ratios to Industry Averages10

Analysis of Segments11

Analysis of Cash Flows12

Conclusion13

References15

Appendix17

Financial Analysis of Nike

Introduction

Nike Inc. is the leading sports equipment manufacturing firm in the world today. Since its inception, it has enjoyed a formidable position in the sports apparel manufacturing sector. NIKE, Inc. was incorporated in 1968 under the laws of the state of Oregon. Nike history is associated with the name of Phil Knight, a mediocre middle-distance runner from Oregon State University team. In 1968, in partnership with his sports coach Bill Bowerman, Phil Knight founded the company that became famous worldwide under the brand name of "Nike" (nikebiz.com). The audit firm of Nike is Earnst &Young that oversees the Nike's activities abroad. The company is listed on the stock exchange of New York Pacific with the Ticker Symbol of NKE (nikebiz.com).

Nike recorded revenues of $20,862 million during the financial year ended May 2011 (FY2011), an increase of 9.7% over FY2010. For FY2011, North America, the company's largest geographic market, accounted for 42.1% of the total revenues. The company generates revenues through six business divisions (based on geographies): North America (42.1% of the total revenues during FY2011), Western Europe (21.2%), Emerging Markets (15.2%), Greater China (11.5%), Central and Eastern Europe (5.7%), and Japan (4.3%) (nikebiz.com).

Industry Analysis

The apparel industry of the United States has recovered from the recessions in 2008 and 2009 and it has shown an improved performance in 2010. The value sales have increased overall and it has shown strong growth in clothing accessories and men's wear (nikebiz.com). However, the trend of the growth is not even and footwear demonstrates negative value growth over the year.

Regardless of the challenges of high prices of cotton and labor, companies are expecting to benefit from the restructure and growth of industry's disposable income on the part of the customers, all over the world. It has been expected that there will be strong growth in the apparel industry by 2015 and the market will return to the sales that were recorded before recession.

Over years of relative economic prosperity prior to the Great Recession of 2008-2009, the US apparel consumer became accustomed to declining prices and heavy discounting on clothes. Decades of inexpensive foreign-sourced manufacturing had made these successive declines in final retail prices possible. Stability in the global cotton market also contributed to this consumer-friendly industry, with commoditized cotton prices in the range of US$0.60 for almost three decades since the 1970s. More recently, global demand for cotton began to increase rapidly, particularly in developing markets like India and China where demand skyrocketed. This increase in imports from the developing world, coupled with shocks to global supply caused by weather and geopolitical disruptions, sent prices soaring. At the beginning of 2011, prices peaked at over US$2.30 (nikebiz.com).

To further compound a worrying year for the apparel industry, cotton has not ...