Running head: A FINANCIAL ANALYSIS OF NIKE, INC.

A Financial Analysis of Nike, Inc.

Kelly A. Youngkrantz
Minnesota School of Business

A Financial Analysis of Nike, Inc.

A Financial Analysis of Nike, Inc.

It is no doubt every athlete, exercise enthusiast, and sports fanatic around the world
recognizes the infamous Swoosh symbol as the trademark for Nike Inc. Headquartered in
Oregon, United States, the company takes the lead as the worlds largest developer and
distributor of a wide variety of products and apparel associated with sports and exercising, as
well as an extensive line of casual attire (NIKE Inc. company profile, 2014). In recent years,
Nike has endured the same effects many other businesses have due to the weak economic
conditions: reduced consumer spending resulting in lower revenues. However, through an
analysis of various financial ratios over the most recent two years (2014-2013), a comparison of
these ratios to industry averages, as well as a look into other factors that contribute to the
assessment of Nikes health, we can see how the company remains as an industry leader. This
examination will start with some of the most important financial ratios and a discussion of the
ratio trends over the years.
On page four is a table of eight of Nikes financial ratios calculated from 2013 to 2014 as
well as a column for industry average ratios to be compared against the company. The first ratio I
calculated was basic earnings per share (EPS). EPS measures the portion of a particular
companys earnings that are allocated to each share of common stock. Seeing the trend in this
ratio will show whether more or less income goes toward common stockholders and will help
investors decide whether or not to purchase the companys stock. I also chose to include the
return on common shareholders equity because it determines how much in earnings a company
generated with the funds invested by holders of common stock. Through the years we can see
whether the company is producing more or less from the amounts invested. Next, return on

A Financial Analysis of Nike, Inc.

assets figures out how well a firm manages and uses their assets to create profit, regardless of
how those assets are financed. This is another important measure of profitability, and investors
are interested in seeing how well managers have used the companys assets to make money over
the years. I also calculated the assets turnover ratio to see how well the investment in assets held
produced sales for the company. Seeing the assets turnover throughout the years will help
identify whether assets are being managed appropriately and will aid in measuring the
companys profitability.
Calculating the days receivables outstanding will explain how long it takes Nike to
receive payments from customers that have purchased on credit. This value is important for
assessing how well the company is doing with their credit terms and whether their short-term
liquidity risk increases or decreases. Another measure of short-term liquidity risk I chose to
include is the days inventory held, which will tell how many days the company held their
inventory until it is sold. Seeing this value over the years will show whether the company could
sell inventory faster or slower. Another ratio is the current ratio. This is a measure of cash and
near-cash assets a company has to service short-term obligations. Seeing this ratio over the years
will help reveal the level of short-term liquidity risk associated with a company and whether they
can safely pay current debt with current assets. Examining the long-term debt to shareholders
equity ratio tells the financial leverage of the company, and indicates how much of the
companys assets are financed through debt as opposed to equity. Seeing how much long-term
debt a company has relative to its equity will provide insight as to whether the company appears
more or less risky in the long-run.

A Financial Analysis of Nike, Inc.

It is important to recognize the trends of these through the years and what this means for Nike.
Starting with basic EPS, Nikes has risen quite steadily until 2009 when there was a 19% drop.
Before this, the EPS was doing very well and increasing which shows Nikes profitability has
been quite strong. Excluding 2009, the increase in this measure indicates Nikes profits have
grown, which is a good sign of the financial strength of the company. It seems the drop in 2009
was the result of a drop in net income, which was likely from the restricting charges, goodwill,
intangible and other asset impairment charges (Form 10-K, 2009). Overall, the EPS of Nike
shows the company is profitably strong.
Next, Nikes return on common shareholders equity has been a bit sporadic over the
years. First we see a decrease in 2007 followed by a nice increase in 2008, and then ROCE falls
again in 2009. On average, Nikes ROCE was 22.3% over the four years. This is a pretty decent

A Financial Analysis of Nike, Inc.

measure of how well Nike has been earning a return on the funds investors have supplied. The
fall in 2009 again seemed to be attributable to the decrease in net income, so the decrease does
not appear to be the result of ineffective management of investor funds.
The companys return on assets followed the same movements as ROCE: a decrease
followed by a nice increase and then another decrease in 09. Although this measure fluctuated
through the years, Nike has done well on generating earnings from their investments in assets.
The companys total assets grew in 2009, and due to the tax benefits from the impairment
charges, the effective tax rate decreased from 08 to 09. These factors contributed to the decline
in ROA. It seems the increase in this ratio in 08 was from a significant increase in net income.
In general, Nike appears to be managing assets effectively and, aside from the decrease in 09,
shows a moderately strong measure of ROA.
Nikes assets turnover ratio has remained very stable through the years; it has stayed at
1.6 until a slight decrease in 09 to 1.5. Management has done very well in utilizing their assets
to create earnings. This appears to be a strength of Nike being as the measurement has hardly
moved. In 09 the slight dip in this ratio is probably due to the decrease in inventories as well as
intangible assets and goodwill which were from the acquisition of Umbro and the related
impairment charges. Again this ratio proves the company does not seem to be struggling with
efficiently managing assets.
Looking at the length of time it has taken Nike to convert their accounts receivable into
cash, there was a declining trend from 06 to 08 until it was back up a few days in 09. On
average, it took the company 54.5 days to turn accounts receivable into available cash. For the
first three years, Nike was continually doing better with collecting payments from customers.
The company reports the higher accounts receivable account is due to the more challenging

A Financial Analysis of Nike, Inc.

retail environment experienced by customers (Form 10-K, 2009) which explains the longer
collection cycle. This measure may need to be watched in case any signs of a higher risk of
collecting payments from customers become apparent.
Days inventory held showed similar trends as the previous ratio. From 06 to 08
inventory was held from 85 down to 81 days before being sold, while in 09 this measure
increased by two days. The decline in days inventory held the first three years indicates faster
sales and perhaps better management of inventory in order to avoid holding too much inventory
at a time. This is another measure to watch in order to evaluate Nikes short-term liquidity.
Because products produced by Nike are not necessarily perishable items, it may not be a huge
deal that the company holds inventory this long.
Nikes current ratio has varied a bit over the four-year period, yet never reached an
extreme value that would be of concern. Moving up from 2.8 to 3.1, down to 2.7 and again back
up to 3.0, Nike seems to have little current liquidity risk. The levels of this ratio indicate the
company has a good amount of assets to cover current liabilities. This is a very significant
strength of Nike because it provides something of a margin of safety in the event that unexpected
losses occur and the company needs those current assets to aid in covering those losses.
Reviewing Nikes long-term debt to equity ratio over the years shows a decreasing
pattern. At 6.5% in 06 down to 5.0% in 09, the long-term solvency risk has decreased. Overall
the proportion of long-term debt to shareholders equity has been quite low. This is a good sign
Nike should have no issues taking care of debt obligations. This is another strength of the
company because if interest rates were to rise, the company does not have to worry about paying
so much in interest for that debt, and profits wont suffer. This ratio shows the level of long-term
risk is quite low with Nike.

A Financial Analysis of Nike, Inc.

When comparing Nikes financial ratios to industry average ratios (textile-apparel,

footwear, and accessories), it will be clear that the company is doing quite well and has no
significant adverse variations away from industry. Starting with EPS, industry average is 0.39
(Yahoo! Finance), while Nikes is much higher. On average, Nike has reported an EPS of 3.13
for the four-year period. This means the company is doing excellent with earnings relative to
their common stock. Next, ROCE is 19.4% in industry (MSN Money) and aside from the drop in
09, Nike has exceeded industry average the other years. An average ROCE of 22.3% indicates
Nike has performed better than industry average at earning a return on the funds investors have
provided. As for ROA, Nike has also surpassed industry average (13%, MSN Money), excluding
09. However, over the four-year period Nike had an average ROA of 14.3%. This ratio indicates
the company is not far off from industry when it comes to managing and using assets to create
earnings. Asset turnover for industry average is 1.4 (MSN Money) while Nikes has exceeded
this in all four years. With an asset turnover higher than industry, Nike is doing better than
average on effectively managing their assets.
For days receivables outstanding, industry average is 39 days (MSN Money). Nike takes
about 14 days longer on average to collect payments from customers. This may be because Nike
has looser credit terms than overall industry. For the industry average days inventory held, it
takes 94 days for inventory to sell (MSN Money), where it has taken Nike 83 days. Perhaps
Nikes products sell faster, meaning the company must keep up with production and continue
managing inventory carefully. Industrys current ratio is 3.5 (MSN Money). Nike has experience
lower current ratios through the years; on average it has been 2.9. However, it doesnt appear the
company is in danger of being unable to service current obligations compared to others in their
industry. When comparing the companys long-term debt to equity ratio, starting in 07 Nike did

A Financial Analysis of Nike, Inc.

well on beating industry average which is 6.0% (MSN Money). In 06 Nike was a bit higher, but
the companys long-term debt decreased the next year and followed this trend through to 09.
The overall financial condition of Nike appears to be quite healthy. The ratios in 2009
seemed to drop a bit, but the company does not seem to have any vital issues that would cause
worry. Despite economic woes in recent years, sales for Nike have been increasing each year,
even though the increase was not as large in 09 as previous years. This is likely due to weaker
markets and the fact that consumers were not spending as much and were not receiving credit
allowances as easily this year (Form 10-K, 2009). It is possible that these conditions may remain
in the future, which could result in similar decreasing trends in revenue as well as other financial
measures. Nike owns extremely important assets that help strengthen their financial condition in
that although economic conditions have decreased, Nikes trademarks and patents have certainly
helped keep their sales coming in. In addition, the companys assets are managed effectively and
should hold up in the future in the event that economic and market conditions do continue to be
weak. Also, the company has not incurred substantial amounts of debt, which greatly aids in
remaining profitable and less risky.
Other factors must be evaluated when coming up with a conclusion on the overall
financial health of Nike. As mentioned already, economic and market conditions should be an
important consideration. Additional aspects to assess are the competitive strategies of the
company and whether they are effective enough to keep up with competitors. Being as Nike is
the leading seller of footwear, apparel and equipment, it seems obvious they are doing something
right with their strategies. Nike has such an extensive product line that if one segment were
doing poorly during some period, other segments could be keeping up and maintaining revenue.
Also contributing to the success of Nikes strategies is their trademarks and patents which are

A Financial Analysis of Nike, Inc.

significant benefits that surely add to their success. The Nike brand itself is recognized worldwide and its Swoosh trademark are both registered in over 150 countries (Form 10-K, 2009).
Another important thing to consider about Nikes health is that their revenues are obtained from
various regions across the world and not solely from one location. This diversification greatly
reduces the companys business risk. If one region is weak, another may be doing well and the
effects can offset each other.
When reviewing what management has shared with shareholders in the annual report and
other documents, it seems what they have to say is quite similar to my own perspective of Nike.
As noted in my assessment, I believe part of the reason Nike is the industry leader is because of
the effective management and use of their assets. The company believes their intangible assets,
the trademarks, are among their most valuable and contribute immensely to their success (Form
10-K, 2009). Additionally, management also considers Nike to be in a financial sound position,
yet they continue to recognize global economic conditions that could adversely affect sales in
future periods (Form 10-K, 2009). Both my assessment and managements discussion believe
that regardless of the economic challenges, Nikes performance was quite impressive overall.
As mentioned throughout this report, economic conditions have had a negative impact on
sales for Nike as consumer spending decreased. This will likely continue to be a challenge for the
company within the next year as the global economy attempts to strengthen. Analysts will likely
continue assessing sales of Nike throughout the next year, as well as keep an eye on Nikes assets
and their management of covering liabilities. Digging into the current SEC filing, I did not see
any documents that appeared to be of substantial importance when examining the next year. The
majority of the filings were statements concerning the change in beneficial ownership of
common stock or securities (Nikebiz, 2010). It was interesting to read through the companys 8-

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10

K report which contains the 2010 2nd quarter conference call transcript. CEO Mark Parker
additionally examined the impact of the economy but believed Nike is doing extremely well and
will continue to develop new strategies to persevere through the weak conditions. Next, CFO
Don Blair discussed the current and potential profitability of Nike. There were no significant
worries about either period. He explained the company is expected to remain confident about
growth in profits, yet still cautious the next few quarters because of the economy (Form 8-K,
2009).
Overall, I believe the financial condition of Nike is healthy amid the weak economic
conditions and reduction in consumer spending. Their strategies and management of assets and
inventory will continue to place Nike at the top. I believe future conditions will remain only
slightly lower than they have been in previous years, but with hope of the economy slowly
turning around, Nike has substantial global marketing power, and their trademarks and patents
will be a significant benefit when powering through these weak conditions.

A Financial Analysis of Nike, Inc.

11

Resources
Form 8-K. (2009). Nike Inc. Washington, DC: Securities and Exchange Commission
Form 10-K. (2006). Nike Inc. Washington, DC: Securities and Exchange Commission.
Form 10-K. (2007). Nike Inc. Washington, DC: Securities and Exchange Commission.
Form 10-K. (2008). Nike Inc. Washington, DC: Securities and Exchange Commission.
Form 10-K. (2009). Nike Inc. Washington, DC: Securities and Exchange Commission.
MSN Money. Key financial ratios: Financial results-NIKE Inc. (NKE). Retrieved from
http://moneycentral.msn.com/investor/invsub/results/compare.asp?
Page=TenYearSummary&Symbol=NKE
Nikebiz. (2010). Nikebiz: Investors: Nike is a growth company: SEC filings. Retrieved from
http://invest.nike.com/phoenix.zhtml?c=100529&p=irol-sec
NIKE, Inc. company profile. (2009, July 16). Retrieved from Datamonitor Company Profiles
Authority database.
Yahoo! Finance. NKE: Competitors for NIKE INC. Retrieved from
http://finance.yahoo.com/q/co?s=NKE
.