Nike Company Analysis

Nike Inc., Consolidated Statement of Financial Position, Assets

USD $ in millions

May 31, 2012

May 31, 2011

May 31, 2010

May 31, 2009

May 31, 2008

May 31, 2007

Cash and equivalents

2,317

1,955

3,079

2,291

2,134

1,857

Short-term investments

1,440

2,583

2,067

1,164

642

990

Accounts receivable, net

3,280

3,138

2,650

2,884

2,795

2,495

Inventories

3,350

2,715

2,041

2,357

2,438

2,122

Deferred income taxes

274

312

249

272

227

220

Prepaid expenses and other current assets

870

594

873

766

603

393

Current assets

11,531

11,297

10,959

9,734

8,839

8,077

Property, plant and equipment, net

2,279

2,115

1,932

1,958

1,891

1,678

Identifiable intangible assets, net

535

487

467

467

743

410

Goodwill

201

205

188

194

449

131

Deferred income taxes and other assets

919

894

873

897

521

392

Non-current assets

3,934

3,701

3,460

3,516

3,604

2,611

Total assets

15,465

14,998

14,419

13,250

12,443

10,688

Source: Nike Inc., Annual Reports

Table 1: Nike Inc., Consolidated Statement of Financial Position, Assets

Nike Inc., Consolidated Income Statement

USD $ in millions

12 months ended

May 31, 2012

May 31, 2011

May 31, 2010

May 31, 2009

May 31, 2008

May 31, 2007

Revenues

24,128

20,862

19,014

19,176

18,627

16,326

Cost of sales

-13,657

-11,354

-10,214

-10,572

-10,240

-9,165

Gross margin

10,471

9,508

8,800

8,604

8,387

7,161

Demand creation expense

-2,711

-2,448

-2,356

-2,352

Operating overhead expense

-4,720

-4,245

-3,970

-3,798

-5,953

-5,029

Selling and administrative expense

-7,431

-6,693

-6,326

-6,150

-5,953

-5,029

Restructuring charges

-195

Goodwill impairment

-199

Intangible and other asset impairment

-202

Operating income

3,040

2,815

2,474

1,858

2,434

2,132

Interest income

30

30

30

50

116

117

Interest expense

-33

-34

-36

-40

-39

-50

Interest income (expense), net

-3

-4

-6

10

77

67

Other income (expense), net

-54

33

49

89

-8

1

Income before income taxes

2,983

2,844

2,517

1,957

2,503

2,200

Income taxes

-760

-711

-610

-470

-620

-708

Net income

2,223

2,133

1,907

1,487

1,883

1,492

Source: Nike Inc., Annual Reports

Table 2: Nike Inc., Consolidated Income Statements

Revenue

The revenue of a firm is the sum of aggregate revenues that recognized from sale of products. For this particular firm, revenues are calculated in the base period of five years between 2007 and 2012

For the year ending 31st May, 2010; Nike was operating on  revenue of $19,176,000,000;

  • In 2010, Nike’s revenue increased from $19,176,000,000 to $20,862,000,000;
  • The year 2012 saw another increase in Nike revenues after registering $24,124,000,000.

Operating Income

This is the difference between the operating revenues and operating expenses within a financial year. Nike Inc. in this case had increased operating income from the year 2010 through the year 2012. The results of the year ending 31May 2010; 31 May 2011, and 31 May 2012, 2012 are as follows:

  • The operating income of the year 2010 was $2,474,000,000:
  • The year 2011 registered an improved operating income of $2,815,000,000 as compared to 2010;
  • In 2012, the operating income of Nike went up to register at $3,040,000,000.

Income before income taxes

Income before income tax is the sum of operating profits and non-operating income before equity method investments, unusual products, income taxes, effects of modification that are acquisitive of accounting principles, and non- scheming income benefits (Lussier, 2009). Nike Inc. registered the same growth trend as witnessed with the operating income in that, income before income tax increased consecutively from the year 2010 to 2011 and then from 2011 to 2012 (see table 2). The numbers for both the income before taxes are as follows:

  • For the year 2010, the taxable income that was registered by Nike was $2,517,000,000;
  • The year 2011 registered an increased income before tax of $2,844,000,000;
  • Like registered in the operating income, the income before income tax went up to $2,983,000,000

Net income

For the financial year or any specified duration of firm’s operations results into the accumulation of consolidated profit or loss, gives rise to taxable income and is attributed to the parent entity or the source of the income. However, if the entity does not present consolidated financial statements, net income becomes the amount of loss or profits for the specified financial period, net of income taxes. In terms of income related issues, Nike Inc. portrayed a uniform trend in that all of the categories matured from the year 2010 to the year 2011 and from 2011 to the year 2012(see table 2). The net income for Nike for the 2010, 2011 and 2012 years is as follows:

  • For the year 2010, Nike Inc. registered a net income of $1,907,000,000 after $610,000,000 was deducted as tax;
  • In the year 2011, Nike’s net income went up to $2,133,000,000 after $711,000,000 was deducted from the income before income tax of $2,844,000,000;
  • The year 2012 registered the highest net income since Nike was founded to clock $2,223,000,000. This was achieved after a tax of 760,000,000 was deducted from income before income tax of $2,983,000,000.

Cash and Equivalents

Nike Inc. had a decline in cash and equivalents from the year 2010 to the year 2011 and an increase from the year 2011 to the year 2012. Cash equivalents include currency at hand and demand deposits with financial institutions like banks and insurances. For the year ending 2010, Nike’s cash and equivalents totaled to $3,079,000,000 while a decrease was registered in the year 2011 as compared to 2010 to make $1,955,000,000. However, the financial year 2012 registered increased cash and equivalents total of $2,317,000,000. However, comparing the year 2010 and the year 2012, Nike registered a cumulative decrease despite the fact that an increase was registered in 2011 (see table 1).

Short-term Investments

These are investments intended to be sold in a short-term periods usually less than the normal operating cycle or one year. These investments include available-for-sale securities, transaction securities, held-to-maturity securities, and other short-term investments not otherwise itemized. For Nike, short-term investments increased from the year 2010 to the year 2011 followed by a declined from the year 2011 to the year 2012. The following trends in short-term investments were registered:

  • The year 2010 registered $2,067,000,000 worth of short-term investments;
  • The year 2010 was followed by an increase of $2,583,000,000 worth of short-term investments into the 2011.
  • Following an increase from 2010 into 2011 in terms of short-term investments, a major decline was registered from the year 2011 to 2012 – this decline brought down short-term investments to record low.

Current Assets

Current assets are the sum of the carrying amounts as registered in a balance sheet representing all assets expected to be grasped in cash, sold, or used up within the normal operating period or duration of one year. As compared with other major financial elements of the Nike Company, an increase in current assets was registered from the year 2010 to 2011 and from 2011 to 2012. The increase registered involved $10,959,000,000 for the year 2010, $11,297,000,000 for the year 2011, and $11,531,000,000 for the year 2012 (see table 1).

Total Assets

Total assets are the summation of the carrying sums of the balance sheet date of all chattels recognized. From the year 2010 to the year 2012, a consistent increase was registered for the case of Nike at the tune $15,465,000,000 in 2012, $14,998,000,000 in 2011, and $14,419,000,000 in 2010. These results can be used to estimate

Profitability

The results clearly indicate that the corporate is able to earn enough income to sustain growth for both long and short term projects. The company's income statement proves this. For this base period, the corporate makes profits each year.

Solvency

The statements show that the corporation is able to fulfill its obligation of paying its creditors as its assets exceed liabilities.

Liquidity

The cash flow in the company remains positive hence the corporate is able to meet its immediate obligations

Stability

From these findings, it is rational to conclude that the company is stable and  projects continued profitability. However these are not enough as there are many other financial indicators to be considered. Some non-financial indicators are also important in order to authoritatively make such a conclusion.

Decision Criteria

Concerning net income that was registered in the financial year ending 31May 2012, a drop in the annual growth rate occurred. For this reason, it is evident that the investment on short-terms business ideas and activities is responsible for the accumulative drop in net income. The fact that a record drop was registered in short-term investments shows that Nike Inc. should focus on profit intensive businesses rather than depending on former models that may have worked during different economic times. In this case, Nike Company has to cut down on short-term investments as it has the potential of doing better in long-term investments. Concerning the actual financial and economic situation registered in the previous 5 years, the year 2012 should have been utilized to promote better results as compared to 2010 and the years that preceded. In this case, Nike’s investors or shareholders do not have grounds for satisfaction concerning 2012 net income results. As compared to other companies, Nike has the advantage of brand name and identity products that have been doing better than close-rivals’ products. It is therefore important that Nike’s investment plan to change from ruthless short-term investments to well thought-out long-term investments. This can be achieved through the creation of a strong Customer Relations Management (CRM) that would address customers’ needs firsthand.

Decision matrix

ethics

Stakeholder satisfaction

profitability

cost

problem resolution

sum

rank

status

rank

score

rank

score

rank

score

rank

score

rank

score

Philanthropy

4

4

5

3

5

3

   5

2

4

3

14

3

No

Creating shared value

4

2

5

4

5

3

5

3

4

    3

16

  2

 No

Incorporation of CSR strategy into business strategy

4

2

5

5

5

5

5

   5

4

2

19

1

Yes

sum

8

11

14

10

11

rank

3

2

1

1

2

Though all the criteria making the decision are important, sums are more important than others. The importance of each criterion is ranked in a scale of one to five and then the score of each alternative  is in each criterion entered out of the rank of that particular criterion. The total score are added to arrive at the best alternative for the corporation. There are several ways that Nike can fulfill its corporate social responsibility. The corporate can opt to use philanthropy in which it may give donations to impoverished groups in the society and charitable organizations. While this method ranks favorably in terms of ethics, the cost implication of the same as well expected shareholder satisfaction (profitability and costs incurred are among the shareholders’ chief concerns) are not satisfactory. Another approach that the corporate may consider is creating shared value where they can aim at developing the society through creating a workforce that is well motivated, healthy, educated and fighting for the right governance thus leading to creation of extra wealth and by extension a more developed society.  While this approach ranks highly in terms of ethics, the cost, profitability and hence shareholders’ satisfaction is limited. Nike can also opt to adopt the fair trade approach, a new method of fulfilling corporate social responsibility currently employed by firms such as KPMG. This is a method of promoting fair trade through purchase of fair trade goods and services in their day to procurement. This method remains the best option for the firm as it is cost-friendly, satisfies the shareholders and ranks highly in terms of problem resolutions. However, this approach ranks poorly in terms ethics as firms employing this method have been accused of not doing enough to fulfill their responsibility to the society.   

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