NIKE Stock Analysis - Research Paper Example

12/03 NIKE STOCK ANALYSIS Executive Summary Nike is a multinational corporation (MNC). It has a varietyof products that reach the market. Among the traded goods at the unit includes footwear, clothing and sportswear. There are also other products and equipments of sports. The company location is in the United States of America. The operation of the company persists in a way that corporate a normal business environment. This means that analysis of the strategic competitive advantage of the company is the drivers for the business growth. A good management position concerning the main product lines will yield positive results (McIntosh, 119) An evaluation procedure of the company requires scrutiny with possible employment of various strategies involved in a normal business environment. A SWOT analysis helps the company identify various parameters for strengths and weaknesses in a business scenario. Diversification procedure requires an established in the most viable way. This will make sure that the risk attribute is no longer a problem in any undertakings. Company Review The analysis of the company and its business depicts a variety of shoes products that displays at the company’s platform. Footwear and other athletic products and accessories make up a large part of the company’s priority areas. Other key products line includes the athletic apparel, sporting equipments, athletic shoes and other internationally recognized sports gear. The strategic analysis of Nike revolves around the strong point derived by the quality products offered by the company. In the footwear products and the apparel, a lot of innovation encompasses such moves and the final products of such innovation are a high quality tailor product that engages the user. The marketing inclination of Nike products reaches a substantial market segment. The advertising procedure employed by the company reveal many product features that correspond to the actual product components. A hugely weighty issue to put in to consideration is the quality of Nike's products (Madura, 25) The quality achievement by Nike involved a lot of market research at the inception stage. This created a stable market grounds that has continued to ensure a high demand in the mainstream products. There is a revealed competitive strategy enjoyed on a exceptionally strong point.The concentration of the company in to a large product offering is indifference. Differentiated strategy works well with Nike. The company encounters a lot of competition. Companies like Abercrombie & Fitch offers to compete products in the same field of business. Nike engages in product variation. This aims to see to it that its products meet every day specific needs of its customers. The long-standing culture of the company requires a through products review so that a high and top priority is concentrated to the home products.A high corporate culture strengthens the company’s long-term existence in its business industry. Employee loyalty and product branding necessitated a need for company branding. The achievement of such a task had an overhaul in the overall marketing strategy of the firm. Coffee cups branding and engrossing “Nike” influenced the product line of products. This further increases a high sense of promotion to the corporate company image. Nike’s headquarters does not appear like a normal office. It is branded the name “campus” to create a positive sense to the employee’s welfare. The players in the industry cohabitate in an extraordinarily way Growth Strategy of the Firm Nike’s strategy of growth focuses on the sale increment by “40% by 2015”. The demands for the products produced by Nike are attributable to technological advancement. An example can be the Nikeplus.com that has about three million followers or members. There is still a focus to concentrate much on women’s product since there is an emerging demand in today’s world. This is because of women involvement in major sporting activities than ever before. The drivers of change and growth Digital technology has driven a lot of change in Nike for a considerable product line. The advertising campaign a great extent in making all ends meet. Many innovations exist in line with the product growth. This innovation creates a lot demand for some of Nike’s product. There are also in place agency relationship signed with the task of creating awareness off the existence of Nike’s products. The overall marketing budget of Nike experiences a great deal of expenditure geared towards the rising cases of advertisement. In general, the whole portfolio of Nike has changed to include a wide range of sports products of sports and leisurewear. A mission statement in place has also highlighted of a growth framework through sustainable growth. Management Capacity The management of Nike requires a high potential capability concerning the increment of the size of the industry, profitability and the general welfare of the firm. The industrial profitability requires a thorough intervention given the likely chances of a high possibility of competition in terms of fashion, price and quality from other companies. The issue of the seasonal demand needs evaluation in the sense that the products demand remains constant all year round. It is also important to note some variances in the seasons particularly during Christmas holidays, spring apparel and many others. The industrial size is of great phenomenon. A complex business handling exists at the firm sorely due to the size. This is a common phenomenon to all large businesses all over the world. The complex data and information poses a threat because of the size of the business. This problem needs to be contained because of a strong expert decision. The management needs to constitute this team to take care of all the available logistics. Business Valuation and Major Impacts The valuation of Nike requires the establishment of a good valuation basis that will capture the entire market segment. A good valuation policy needs a constitution. Valuation chosen should put in to considerations issues like the cost of capital, dividends payments, expansion capabilities of the firm, profitability and the need for future expansion by the company. The stream of income generated by Nike has a unique risk and this affects the overall return of the company (Madura, 25). The valuation of the firm experiences a lot of impact based on the information available in the market; this revolves around the theory of efficient market hypothesis. The theory signifies the information needs to reflect the security prices in the market. The available of information may be limited to a few individual at the market level. Information available could also be concentrated to many public members such that the information is widely known. This creates efficiency. The firm may rely on the industry information or even the economic information. There arises a need for a benchmark analysis to be able to know the best information to focus on the security prices. Technological impact is another possibility that can affect the valuation. This happens because of online quotation of security prices, which brings a challenge in the overall market. An investor of Nike’s securities can access the security prices and information by a click of the mouse. This brings about the issue of proper adjustment any one given time. SWOT Analysis for Assets and Liabilities A business phenomenon like SWOT analysis will provide an opportunity to gauge all the available opportunities undertaken by a business. All threats to the overall success of the business need evaluation. A major diversification program is achievable by the company through venturing in to a wider market segment. This will provide a steady and ready market for the products. The quality of the products increases demand since a high quality innovative idea attracts many customers. This will help in the achievement of a global network that yields a positive result. Positive result will increase the employee’s motivation. This will take the company in to very far ends in the overall continuity of the business in to a near future without ant intent to curtail the scale of its operations. Another opportunity comes in from the point driven by innovative idea. This idea will help establish a good market due to the capacity to establish and capture target customers based on fashion, size and variety among others. There is the possibility of some weak points that affects the overall performance of the company. These involve the issue of a variety of sports products that at times proofs an element of manageability risks due to the complexity and bulkiness. Similarly, some of the product line attributes becomes their worst competitor. This means that many resources will lie idle and unutilized in the end. There are a number of observations that clearly indicates the potential strengths and weaknesses of Nike. It is a strong point to indicate that most of the firm’s brand gains a lot of usage by the crowd out of the global competitiveness. People tend to wear Nike’s sportswear both for the players and for the spectators. The picture depicted here is the urge for all participants to follow the mood and come up with equal garments of equal measure. The problem of pricing poses as a threat to the firm. Most of the products offered by Nike provide a competitive ground from other suppliers of sportswear. The winning supplier is the one supplying low priced goods. With the quality of products offered by Nike, it is sometimes impracticable to offer some of these goods at a very low price. The rival company ends up providing the least cost goods at the expense of the firm’s produce. The high level of technological growth provides an opportunity through which the product of the firm is in demand. Fashion trends come with this technology. The current generation is willing to pay expensively for a particular fashionable product. This goes to products like the sunglasses, clothing and shoes. There is a lot of money that generates out of this experience. Economic forecast Foreign Direct Investment (FDI) provides the best strategy for investment geared towards increasing the shareholders wealth. FDI focuses on real assets investment. These assets include buildings and machineries. The assets are income generated and inject a lot of capital that is very useful for future investment (Madura, 29). The sole reason as to why a big company like Nike will involve itself in Foreign Direct Investment is to make sure that there is a realized economic benefit. FDI aims at boosting revenues with reduced cost. Another important economic forecast is revenue related in nature. New sources of demand need creation through a growth of major product so that diversity establishes itself. Major countries like Argentina, Mexico, Chile and Hungary needs a target. There is an observed need of high demand from these countries ranging from their traditions of football to the weather conditions prevailing in these states. An available market exists. This will be aligning the company to already established institutions that focuses strongly on the available market opportunities. A boost in earnings will realize in the business run because of this interaction. Monopolistic advantages exploits in a significant way. This involves the possession of extra ordinary advantage in the sense that the firm may exploit this advantage successfully. There is a possibility of firms reacting to some of the trade restrictions. These restrictions include the use of defensive strategies through Foreign Direct Investments. The Stock Market Indices The issue of consideration is the determination as to whether the stock market will either increase or decrease. A critical analysis of the GDP is available at the company’s website courtesy of BullandBearWise.com. From the graph, in 2008 is the year that experienced the worst recording point of GDP with a return of -8. This is attributable to the world economic crisis of 2007/8. Further, as the year 2009 approaches, the market is now at Break even Point. This means that all profits earned equals to all the obligations of the firm. By the end of that year, the GDP is at its maximum. The trend decreases towards the year 2011 slightly at around break-even point. By the year 2011, GDP is again increasing. By the year b2012, 2013 and 1014, it can be observed that the GDP will be increasing upwards rather than decreasing downwards. Social Responsibility of Nike Nike represents a lot of business to its society. Many of NGO’s campaigns is conducted with the target of symbolism t reflect representation. Human rights issues and the workers conditions need control. This is not the case of treatment of workers in other less developed countries. Nike’s overall strategy towards the issue of corporate social responsibility goes to the extent of providing sporting activities to the younger generation. Nike gained a lot of preference in the choice of its production to source from other countries whose government is acknowledged by the investment partners as a way of increasing corporate image (May, Cheney and Roper, 2007). The need of the people is met by the production of goods of quality nature to people. Independent contractors who possess these products manufacture all of the products by the company. Nike has a developed website program that is a focus on the issue of corporate responsibility. Ratio Analysis Finance and Accounting in Nike The accounting procedure employed by Nike involves a comparison estimate where current company’s records are bench marked with those of the past. This situation gives a rough estimate of how the entire market is performing. Some important ratios used by the firm include the liquidity ratios, leverage ratios and the profitability ratios. These ratios give a good decision point in the overall performance of the firm. In the case of Current ratio, the acceptable and favorable ration ought to be one. Accounts receivable is another strong ration that shows the suitability of the working capital. The presence of a higher ratio indicates the success of the firm. Nike’s Altman Z score The Altman Z score is a good indicator of the credit rating of the firm. The indication of a score 2.67 shows a good policy that the firm risks of bankruptcy remains minimal. Technology in Products The teaming up of Nike with Apple provides a good scenario in the best product line. The consumer’s connection is evident of the potential advantage such a product line creates to the used. This brought about the connection of the shoe with the ipod in a magnificent way. One can be able to determine calories burned in an afro technology . Target of Nike Nike targets include the attainment of economies of scale. Sustainable understanding is among the key areas that will help attain the large-scale production. Corporate responsibility will also be in line with the overall attainment of a big market share. A strategic master plan needs formulation in this of an undertaking. The achievement of a strategic plan puts in to consideration issues like innovation, technology, manufacturing and other dominant plan. As a matter of emphasis, Nike provides a variety of computer software that provides a sporting service to customers. The organizational structure includes a geographical segment, major competitors and the overall business analysis. Each of the segments plays an important role in the general running of the company. RATIO: Formula: Calculation : NIKE: Industry Liquidity 2.28 times Quick/acid test 1.43 times 1.17 times Inventory turnover 7.32 times 4.34 times Times interest earned 19.43 times 21.88 times Profit margin 5.69% 5.14% Return on Equity 13.54% 18.77 % Debt to total assets 40.69% 15.36% Collection period 63.17 days 7.71 days Total assets turnover 1.67 times 1.69 times Source: Nike, Inc. 1999 Annual Report Explanations of the Computed Ratios Profitability ratios used in particular to Nike’s financial structure includes the profit margin and the return on equity. From the perspective of the profit margin, the company profitability reflects a 5.14% compared with the industrial average of 5.69%. This shows that Nike performance in respect to the market is not particularly favorable as per the industry’s benchmark. Many reasons can be attributable to the decline of the company profitability and mainly it is because of a lower value in terms of the net sales. The difference is not quite significant. There remains a possibility of the company recovering in the future simply by finding ways of increasing the net income possibly through the sales increments Another ration put in to consideration is the return on equity. This ratio is influenced by the net income in respect to the net worth realized. From the company’s perspective, the performance lowers compared to the industry performance. The firm’s ration of 13.54% is way below the industry ration of 18.77%. The reduction in the Nike’s return on equity is attributable to the presence of low net income yet the net worth is high. The company is, therefore, in a substantial financial obligation to realize high returns in the future (Strategic Analysis of Nike, p.24/table of key financial ratios). Computation of the Beta Factor Date S&P500 % Change (X) TXN %Change(Y) 8 Nov 1,005.75 0.04 19.09 -0.02 8-Oct 968.75 -0.17 19.56 -0.09 8-Sep 1,164.74 -0.09 21.5 -0.12 8-Aug 282.83 0.01 24.51 0.01 8-Jul 1,267.38 -0.01 24.38 -0.13 8-Jun 1,280.00 -0.09 28.16 -0.13 8-May ,400.38 0.01 32.48 0.11 8-Apr 1,385.59 0.05 29.16 0.03 8-Mar 1,322.70 -0.01 28.27 -0.06 8-Feb 1,330.63 -0.03 29.96 -0.03 8-Jan 1,378.55 -0.06 30.95 -0.07 7-Dec 1,468.36 -0.01 33.4 0.06 7-Nov 1,481.14 31.57 Nike’s Valuation Model. Valuation Model Data Values Short term Beta 0.85 Short term CAPM Cost of Equity 8% Sort term CAGR, Revenues 10% Short term Net Profit Margin 10% Sustainable Beta 0.77 Sustainable CAPM Cost of Equity 9% Sustainable CAGR, Revenues 4% Sustainable Net Profit Margin 10% The sustainable portfolio for the past three years had a correlation of 0.01 as per the consumer discretionary portal. This does not show any relationship. This peculiar behavior is in line with the Nike’s discretionary stock. The kind of behavior depicted by this market emanates from the high dependence of US revenues. The sector performance by Nike is directly attributable to consumer discretion. The consumer sector had been so much been affected by the economic crisis of 2007 to a point of arriving at an inverted yield curve. This curve puzzled every one since this is an indication of an economic distress. An indication of the short term Beta at 0.85 from the above diagram shows a defensive security. Nike Overall Master plan Nike is one of the most recognizable sporting companies in the universe. The competitive nature gains a lot of global recognition due to the popular brands offered not only in America but also in everywhere. Almost each individual is a consumer of Nike’s products. In the world today, some people well recognizes and associates themselves with Nike’s products. A tiger wood, LeBron James and Mia Hamm are a good example. The largest market target for the company’s product is mostly the youth just above teenage. The target group makes it possible for the products to attain a global phenomenon and competitiveness since a majority of citizens is the youthful population. Nike employs a marketing strategy that focuses mostly on the advertisement to reach its customers. The strategy adopted by the company is aggressive in nature due to the existence of major competitors. Major competitors of Nike include Adidas, Asics and the Reebok among others. Security Regulations at Nike A lot of information requires disseminating and receiving to the right end user for the efficient functioning of the firm. When this information is in the absence as required, it may result in to asymmetric information. This is the possibility that some managers of the firm possess some of the information that is not available to potential investors. There is thus the possibility of adequate disclosure of information. Any disclosure is adequate if the kind of information that is available is accurate and there is availability of this required information to the public. Any kind of information that is known and available to few people is not good. It creates a possibility of some people having superior information than others (Madura, 9). Global Consolidation Financial institutions require consolidation. This attribute is attainable through global recognition. The element of global competitiveness comes in because of global expertise. Various institutions have gained a lot of strength through mergers. Insurance companies, commercial banks and security firms are excellent examples of potential elements of international mergers. Nike’s main competitors include Adidas, Puma, Under Armour and the Quicksilver. These provides the competition mechanism and power that Nike must out do. The largest producer of the footwear remains Nike Company with the market share of over 45% being the supply. The company has a recognized global attention of its product and there are market estimate that predicts the market to hit more percentages in the future. Nike’s Neutrality Market information available has indicated a highest possibility of the Nike’s market maintaining a high level of stability given the unpredictability of the market crisis. A lot of research conducted reveals the possibility of leveraged expenses of selling and distribution. The marketing strategy adopted had been extremely aggressive particularly on the threats exhibited by emerging markets. This means that there has been a strengthened competitiveness ground that cannot weaken the expanded base of the firm. The firm operates under a leveraged statement of financial position. This offers a robust platform for growth oriented goals because of varied financial flexibility. There are problems associated with the overall running of the firm. Operating performance tend to decrease gradually due to high expenses incurred. These expenses emanates from intense competition and a lot of spending for consumer preferences. Developed countries also pose a threat in terms of political and economic risks associated with their governance. The global competitiveness arises because of the exchange system of the currency. Problems of currency fluctuations may therefore arise because of this trading. Potential Grounds Footwear manufactured by Nike provides a global market share. The growth potential witnessed by this industry shows a consistent trend. Key contributors to this trend are the availability of a strong innovative idea and a high marketing taskforce in place. The gross profit margin experienced by Nike’s footwear exhibits a improvement in the period running from year 2006 to 2010. This trend is a clear significant of a rise in profits. The movement in profits illustrates a possible hedge strategy that ensures no financial loopholes exist. Human Resource Management There is in place a Human Resource Management in place that over see the network system designed for the employees. The networking that is available will ensure that the organization promote a lot of diversity to fellow employees. The network structure aligns in a way aimed to see to it that professional development exists. A lot of work performance becomes one of the main objectives. Other human resource strongholds include the idea of the best recruitment drive, interaction and teamwork. Nike’s Overall Goals The goals of the company involve the idea behind an overall diversification strategy of the firm. This is in line with an establishment of high performing employees who will ensure a lot of diversity in the innovative idea of the company. The dialogue of the whole system and the running of the whole company are also put in to consideration in the overall growth of the firm. Summary The key drivers of Nike’s business value require a lot of consideration in the overall business continuity. Footwear products and the apparel provides a significant decision point when evaluation Nike’s product line. The market share of the footwear is of significant compared to that of apparel. Future increase in the market demand of these products is inevitable. The contributing factor to an assured increase in future demand is the enormous innovative idea and the marketing strategy employed by the firm. Billions of revenues realized in the firm puts the management of the firm with key roles and tasks ensured at the attainment of high profits. The complex nature of the business requires aggressive strategies to line with the risk ness. The operation of Nike can be termed as high-risk high return from an investor’s point of view. A lot of visibility exists at the market due to the presence of endorsement deals that comes with high profile athletes. This creates a lot of market from a global perspective. Major expansion programs are underway to cater for Nike’s growth. The market segment caters for both the retailers and distributors. That means that the firm capacity to capture all margins remains high. There is a witnessed demand of footwear that is for other purposes other than athletic use. This trend exists in substantial parts of Europe and the US. This creates a lot of demand. There exists a concern about the cost of commodities used as raw materials in the firm’s productions of the footwear. These raw materials include cotton. The company’s measure to curb this eventuality will be to import some of these raw materials to protect against shortages of raw materials. Recommendation Stock valuation is a crucial point that requires a lot of scrutiny before the actual commitment to buy. This is because many risks affect various stocks that are available in the markets. Some of the stocks may be overvalued. Others are undervalued. Some securities are efficiently valued. It is of significant magnitude to identify that a highly public company like Nike provides securities. These securities trade well in the stock exchange market. Nike strategy of employing a suitable investing decision is commendable. The stocks value shows a positive trend as per the valuation criteria and hence offers a superb portfolio measure. Works Cited Anderson, J.Black Enterprise Guide to Investing. Washington D.C: John Wiley and Sons. 2000 Anderson, A. The Making of a Market Guru: Forbes Presents 25 Years of Ken Fisher. New York: John Wiley and Sons. 2010 Brigham E & Houston J. Fundamentals of Financial Management. Washington D.C: Cengage Learning, 2007 Brigham E & Ehrhardt M. Financial Management: Theory and Practice. New York: Cengage Learning, 2008 Dunphy D, Griffiths A & Benn S. Organizational Change for Corporate Sustainability: A Guide for Leaders and Change Agents of the Future. New York: Routledge, 2003 Ferrell O, Fraedrich J & Ferrell L. Business Ethics: Ethical Decision Making Cases. . Washington D.C: Cengage Learning, 2009 Hill C & Jones G. Strategic Mnagement Theory: An Integrated Approach. Washington D.C: Cengage Learning, 2009 May S, Cheney G & Roper J. 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