revenue per share is $35.83 compared to Reebok's $50.10. The dividends per share for
Nike is $0.48 and long term debt per share is $2.33. It is important to know the price per
each share because you can measure it with the ratio's and see if it is worth its value.
The profitibility is broken down to gross profit % and Net/Operating profit %. The
gross profit % of Nike is 42.4% compared to 43.3% in the year 2000. Yet, again the gross
profit is bigger in Nike-3,814.9 to 2,380.3 of Adidas. The sales figure is also higher in
Nike then it is in Adidas. Gross profit has to be large enough to cover overheads in the
long run. The starting point is always turnover. The first deduction from turnover is the
cost of sales. This gives gross profit, which should be similar from year to year or better
and Nike improved 2.4% from 1999, where as Adidas dropped 0.3%. While Adidas
defeats Nike in gross profit, Reebok's gross profit was 38.57%. The operating profit
margin can be calculated the same way as gross profit and is what remains from sales
revenue after deduction of all operating costs, including overheads. The net profit for
Nike in 2000 was 10.9% compared to 7.5% for Adidas and again the higher the better.
The gross profit was pretty close, but the net profit prooves that Nike is technically more
efficient. It's all beginning to map out on Nike's favour now and Return on capital
invested is currently at 13.5% compared to a modest 10% for Reebok. The return on
capital invested measures money, which can be earned by investing in aphysical capital.
It reflects effectivness with which the business uses its capital equipment . Rising ROCE
values in one firm raise the opportunity costs of capital in other firms and other
industries.
Ratio's that I could of used was return on equility, assets and pre-tax profit
margin, which all show that Nike is considerably a better firm to take shares out.
Futhermore, a firm like Adidas will find it hard to mainitain profits in the long run like
Nike can.
The performance ratio leads to the conclusion that it would be wiser to take
shares from Nike and not Adidas. Performance ratio gives an indication of how
efficiently the business is perfoming in areas such as stockholding and chasing up
customer debts. It is a good way to see how efficient a firm like Adidas or Nike is in stock
and assets and how much usage of it is converted into cash. The stock turnover measures
how long it takes for the business to sell its stock. It is a target of all business to sell its
stock in as few stock as possible. It takes 89 days to sell its stock for Nike. Meanwhile,
the asset turnover for Nike in 2000 was 1.54 days to 1.45 days for Adidas. However, the
ratio that stood out from the rest was debt collection period, which measures how long it
takes a firm to collect its debt. It would take a mere 58.61 days for Nike in the year 2000
compared to Adidas who would take a huge 118.65 days. I would of looked for
a firm that perfoms to highest ability and consistently at a yearly basis and Nike fufils
that criteria. Performance is probably the most evidental that Nike is worth taking shares
of and even other competitors such as Reebok fail to deliever as with the high quantity of
numbers for everything including annual sales, employees, market value, profitability and
performance, it would be foolish to pick any other company to take shares out of. I found
out that the ratios don't look at quantity, but rather quality of solvency, profitbility and
performance shown by Nike's defeat to Adidas in some areas, even though it would have
bigger values.
I'm now going to look at the techinical department of Nike to proove if it is really
worth taking shares from...
-Industry: -
Nike belongs to nonrubber footwear industry. The Athletic footwear industry is highly
competitive. The market share data shows Nike and Adidas as the major players in the
industry. In 1991, Nike led the way with a 29 percent share. Reebok held 23 percent of
the market, while the rest of the industry split the remaining 48 percent. As a group, the
industry reported a 4.8 percent increase in sales in 1992, but posted a 19.5 percent
decline in profits. During 1992, Nike and Reebok recorded 94 percent of the profits in this
industry. Nike, Adidas, Reebok and Fila can be seen splashed all across the front of
athletic clothing. This represents a double benefit for the industry because people pay to
be seen in the company's apparel, and the industry gains free advertising.
The latest industry statistics show total sales increased by 7 percent on 6 percent
unit sales figure from 1994 to 1995. Domestic consumers bought 344 million pairs, while
spending $13.3 billion in 1995. For four straight years, the 12 and under female category
have shown great increases. Also, in 1995, adult women accounted for 45 percent of total
dollars, while adult men contributed 42 percent of total sales. This men's figure was up 5
percent over 1994, another high growth area.
The industry as a whole concentrates heavily on advertising. Some well-known
sports figures endorsing Nike include Michael Jordan, Bo Jackson, Deion Sanders, and
most recently, golf phenomone Tiger Woods. Reebok spokespeople include Shaquille
O'Neal and Emmitt Smith.
The future of the Athletic Footwear industry looks bright. Out of 966 million pairs sold,
athletic shoes account for 39 percent of total pairs of footwear in 1994, and $8.05 billion
in wholesale revenue. This indicates the demand for athletic shoes should remain high for
years to come with plenty of room to grow. Internationally, the industry has great
potential. Only Nike has been successful at penetrating the Asian market. In 1993, Asian
sales represented $500 million of Nike’s totals of $4 billion.
-History:-
The words "Nike" and sport shoes are almost synonymous in today's society. However,
this was not the case thirty-five years ago. In fact, it took some time, but Nike, Inc. is now
the #1 athletic shoe seller in the United States and the world
The current CEO and Chairman of the Board for Nike, Inc., Phil Knight, and the
current Senior Vice President, Bill Bowerman, formed their own athletic shoe company in
1964 in Eugene, Oregon. At the time of their first meeting. By 1971, their newly formed
athletic shoe company was growing and the brand name was chosen to be Nike, the
Greek goddess of victory.
The good news for Nike came in the 1970's when jogging became a national
craze. Everyone began wearing sneakers (even if they did not jog or run). Eventually, the
jogging habits of Americans slowed down, but athletic shoes would never again be
thought of in the same way. The bad news came when Nike and the mostly male officers
(former male athletes) missed the big opportunity in the women's athletic shoe market.
Business did pick up eventually in this market, but Reebok, Nike's challenger, took the
immediate lead in women's fitness
-Mission:-
"To maximize profits to shareholders through products and services that enrich people's
lives" is the mission statement for Nike, Inc. In addition, their objectives to realize this
mission are as follows (Nike, Inc.):
1. "Provide an environment which develops people to maximize their contribution to
Nike."
2. "Identify focused consumer segment opportunities."
3. "Provide quality and innovative services and products internally and externally."
4. "Establish and nurture relevant emotional ties with consumer segments."
5. "Maximize profits."
-Culture:-
Knight has been known to disassociate with employees who resign from the company. He
also expects complete loyalty from all employees. In fact, employees at Reebok believe
that Nike's culture is too intense. Reebok's culture stresses their gentler side, creating an
atmosphere that clearly shows there are distinct differences between the two companies
In Portland, Oregon, Nike has recently donated a $500,000 grant to support the
athletic programs in a school district that has a severe shortage of money. Knight is
donating $100,000, Michael Jordan is donating $100,000, and P.L.A.Y. is donating
$100,000. Approximately 30 percent of Nike’s employees have children in these schools,
so these donations show Nike's support for the community.
Culture is obviuosly important to all businesses. None more so then Nike, who are
dependent on employeed performing skillfully.
-Marketing Overview:-
Nike played by the rules, but established a competitive advantage though
inexpensive production and technologically superior product design. More recently, Nike
has abandoned its production focus, opting to become a customer oriented company
In its earlier product oriented phase, Nike built a competitive advantage on
inexpensive outsourcing. Phil Knight first became aware of inexpensive, high quality
Asian manufacturing while on a world tour he took after graduation.
The company that once centered on merely outsourcing and technological product
improvements now bases its success on a clear focus. That focus has guided Nike into
new market segments, such as basketball, tennis and most recently golf. In each one,
Nike has further carved out smaller segments, leaving competitors with less and less
room. Today, Nike is a marketing giant that has profited greatly from its early and
perhaps most important lesson: "Play by the rules, but be ferocious." -
International Markets:-
Nike sells its products in more than 100 countries, operates sixty-one retail outlets, and
has administrative offices in Austria, Canada, Hong Kong, the Netherlands, and the US.
Some of Nike's heaviest business will be outside the US over the next five years. Reebok
already makes half its sales overseas, Nike sells about 40% of its goods abroad, and both
are tantalized by future prospects. The overseas market for athletic footwear alone is
about $6 billion to $7 billion annually.
-Brand, Advertising and Endorsements:-
Nike made the decision to focus strictly on running and basketball which
prompted the Air Jordan project. This project proved successful and showed Nike that
slicing things up into digestible chunks was the wave of the future. Basketball was all
about performance, so it fit under the Nike umbrella. Sales began to skyrocket. Other
categories under the Nike brand include cross-trainers, water sports, outdoors, and
walking.
Nike has not always been successful with its advertising. They have taken many risks
over the past decade. One example is the Hare Jordan commercial that aired during the
1992 Super Bowl that starred Bugs Bunny and Michael Jordan. This was a successful risk,
compared to the risk they took with their advertising direction with women. In 1987,
Nike produced some ads they thought were very funny, but many women found insulting.
It took Nike years to recover the female market.
-Recent Financial condition:-
The net income most recently for Nike in 2001 was $97.4 million, a 33% decrease
from 2000 earnings of $145.3 million. Revenues were essentially flat with prior year,
gross profit declined 5%, and selling and administrative expenses increased 4%. The
revenue and gross margin might of been affected by lower demand in the US footwear
business, supply chain disruptions, and the weakness of the euro against the US dollar.
Therby meaning the same fate for the likes of Adidas and Reebok. US Nike brand
revenues for the quarter, decreased 6% reflecting lower footwear revenues. While US
footwear revenues decreased, both US apparel and US equipment revenues increased
during the year, by 7% and 56% respectively. International revenues represented 48% of
Nike brand revenues and increased 9%.
selling and administrative expenses were 29% of revenues compared to 28% in
the prior year. Marketing and operational initiatives drove the higher level of selling and
administrative costs. In addition to this factor, selling and administrative expenses for the
year also reflected increased marketing activity relating to the 2000 Summer Olympics
and the 2000 European Soccer Championships. Cash
provided by operations for the nine-month period ended Feb 28,2001 was $328 million,
which was a decrease of $109.7 million from the same period last year. Total cash used
by investing activities during he current year period was $245.9 million, $102.9 million
less than for the prior year period. Net cash used by financing activities for the nine
months was $177.5 million. This amount included uses of cash for dividends to
shareholders, a reduction of short term debt, payment of a maturing note payable and
stock repurchases.
Future:- Worldwide furtures and advance orders for Nike brand athletic footwear
and apparel and scheduled for delivery from March through July 2001 totaled $3.8
billion. It was 3% higher in the current year than in the prior year. Foreign currency
exchange rate fluctutaions can also cause difference in the comparisons. Accounting
shares profile:-It is estimated that a charge to net income is made of $0.10 per share.
Under current accounting practise, these costs would have been cahrged to expense in
the year 2003.
-Financial Information:-
Nike's financial performance over the last two decades is matched by few, if any,
corporations. Sales have tripled since 1990. Shareholders' equity has more than tripled
over the same period. While growing rapidly, Nike has managed to reduce two-thirds of
1990's debt. Profits grew in direct proportion to sales during this period. In other words
as business grew, expenses remained a constant percentage of sales (37% gross margin
on sales). While Nike has successfully managed explosive growth over the last several
years, the company's 1996 balance sheet suggests that future explosive growth rates are
possible if cash flows are effectively managed. Some 1996 financial ratios are as follows):
But all this is of 1996 as you can see in the application and analysis section the
current ratio for the year 1999 is considerably different as it comes out as 2.3:1, where as
the current ratio in 2000 worked out at 1.7:1. The current ratio in 1999 has better figures
then 2000 because there was far more current assets-3,264.9 then current liabilities-
1,446.9, where as in comparison to 2000 the current assets was at 3,596.4 to 2,140.0
current liabilities. Even though the current assets is bigger in 2000, the current liabilities
is much higher. In Adidasthe 2000 figures stands at 2.4:1, which is the best so far, but
this is because they have fewer assets meaning there would be fewer liabilities. The acid
test ratio back in 1999 was 1.4:1, where as 2000 figures is at 1:1, which means it is
getting better every year.
The current ratio suggests that Nike has more than enough cash and assets that
can be quickly converted to cash to pay for bills due within one year. The acid-test ratio
is fairly low. This implies that Nike needs to have efficient collection of credit sales.
Inventory also needs to be moved quickly. However, as stated earlier, the "futures"
program should allow for optimal inventory management of footwear. The moderate
debt/equity ratio shows that Nike currently has the financial health necessary to borrow
significant levels of funds to use for expansion.
The debtor collection period is far more effieicient in Nike as by the workings it
would take 33.52 days to collect debts in 1999 to the Adidas collection period of 113.27
days.
The financials, as well as marketing reports, suggest that Nike has two major growth
opportunities. One opportunity is penetration into foreign markets. Nike has grown in
both the United States and foreign markets from 1990 to 1996. However, growth in
foreign markets has been higher than in the United States. As one can see from the
accompanying geographic revenue distribution graph, U.S. revenues accounted for
78.5% of all revenue in 1990. In 1996, U.S. revenues only constitute 61.3% of Nike's total
revenue. Where as in 1999-2000 Nike has became more international, meaning US
revenues constitute much less.
Nike's second major growth opportunity lies in product development. Originally the
company derived most of its revenues from selling athletic shoes. However, one can see
by the accompanying revenue by product group graph that all footwear is only 68.8% of
total 1996 revenue. Nike has developed enough of a brand loyalty that high markups on
other products such as clothing apparel are attainable. This fact will be key to continued
revenue expansion if the shoe industry suddenly does not support the currently
extravagant product pricing.
-Conclusion:-
Nike is a fine example of how successful a company can become when production,
marketing, and management functions are properly integrated. As you can see from the
analysis on the ratios that Nike financial qualities lie on innovating new ideas by
branding, endorsing and advertising their products making it far popular then nearest
rivals such as Adidas and Reebok, which don’t have as consistently good sales.
From this you can see how strong Nike is not only financially, but also in all departments
including brand, culture and advertising. Therefore, putting it way ahead of rival
competitors including Adidas and Reebok. So I would recommend taking shares from
Nike rather than Adidas because of the past success on sales, knowing that it would only
get better in the future.
Reference Sources:
-Hoovers Online(www.hoovers.com/annuals/2/0,2168,14254.00.html)-Nike and Adidas
Financial Data-26/02/02
-Nike Inc-Quartely Report(http://bizyahoo.com/e/010416.html)-05/03/02
-Accounting Ratios sheet of paper
-Advanced Business-interpreting financial information-pgs 489-503
-Google-Keyword Nike Inc financial information, Adidas financial information, share
price of Nike Inc+Adidas
-Nuffield Students Book-pgs 72-76+113-123
-Calonius Erik."Smart Moves by quality champs" Fortune. June 10,1991;pages 24-28
-Hick Virginia,"creative thinkers are here too", St Louis Post Dispatch, June 24, 1996
-Goovers MasterList database, Hoovers, Inc, Austin,TX
-Labich, K, and Carvell,T.,"NIKE Vs Reebok", Fortune, Sept 18 1995
-Steve Law,"Nike expands campus footprint", Business Journal portland, Dec 22, 1995
"Be Ferocious", Forbes, August 2, 1993
Nike Inc, 1996 Anual Report
http://www.npd.com/smpr1.htm
Jeff Manning,"Nike reports a gold medal year", Oregonian, Jul 10, 1996
