Nike: Evaluation Matt Fritz

Nike's Dominance

  • Since its inception in 1964, Nike has climbed its way to the top of the sports apparel and footwear industry. To get an idea of Nike's size compare the 2016 revenues of Nike with its competitors.
  • Nike: $32 billion Adidas: $17 billion Under Armour: $4 billion

Management Strategy

  • Management's strategy is to "achieve long-term revenue growth by creating innovative, “must have” products, building deep personal consumer connections with our brands and delivering compelling consumer experiences at retail and online."
  • Operational Goals: Expand gross margin, optimize selling and current administrative expenses, manage working capital, and deploy working capital efficiently.
  • Long-term financial goals through year 2020: High single digit growth in North America, low double digit growth in Europe and Asia, and sustainable, profitable, long-term growth through effective management of their diversified portfolio of businesses.

Competitor Analysis

  • Nike displays very impressive financial ratios in comparison to industry averages and competitors. They show their ability to meet short term obligations with their current ratio at 2.8 and quick ratio at 1.62 (both above the industry average).
  • Solvency is an issue for many companies. However, Nike looks strong with debt - asset ratios hovering at about .42.
  • Previous three year's debt-equity ratios: .75, .70, .72. This indicates a preference to finance operations more so through equity rather than debt. This is the opposite of Adidas who has a debt-equity ratio of 1.35 (Industry average is 1.1).
  • While Nike, Adidas and Under Armour have fairly even gross profit margins, Nike's operating profit margin and net profit margin are significantly higher than the competition.

Free Cash Flow and Strategy

  • As stated in the MD&A section of the financial statements, Nike's long-term strategy for revenue growth is by creating innovative "must have" products.
  • Positive free cash flow reflects the amount available for business activities after allowances for financing and investing requirements to maintain productive capacity at current levels.
  • In 2016 Nike had almost $1 billion dollars in free cash flow. This is what allows Nike to fund research and development in order to produce innovative products.

Meeting Operational Goals

  • Expand Gross Margin: Since 2014 has raised GPM from 44.8% to 46.2%. This increase is primarily due to an increase in Nike's average selling price by offering more premium products with higher margins. Growth in direct-to-consumer (online) market also increases GPM because of higher margins.
  • Optimize Selling and Current Admin. Expenses: Nike has done an incredible job building infrastructure which has allowed them to operate efficiently. Selling and admin. expenses for Nike only make up 32% of revenues while Adidas is at 43% and Under Armour is at 38%.

Growth Potential

  • Innovation is essential if Nike hopes to reach their goal of high single digit revenue growth year over year. Over the past 10 years Nike has averaged 8% growth per year.
  • High single digit growth in the Americas may be difficult to attain. The growing popularity of Adidas in the United States is something that Nike needs to address. Adidas has a foothold in the soccer and casual where segments.
  • Growth in Japan and the Greater China regions may make up for the slow down in North America. In 2016 alone Nike experienced an increase in revenues of 23% in China and 15% in Japan. This is a largely untapped market that Nike has intentions of profiting from.

Final Evaluation

  • Comparative Financial Statements reveal that Nike is clearly the industry leader.
  • Financial ratios and industry comparison show that Nike is in sound financial condition.
  • Growing cash flows and free cash flows show that Nike is managing its operations efficiently.
  • Annual revenue growth in the Americas may decrease slightly to a range of 6% - 8%, however these will be largely offset by the dramatic growth in the Japan and Greater China regions.


Created with images by CaptainRunning - "sneakers shoe basketball" • skeeze - "running runner long distance" • Pexels - "fashion flyknit racer foot" • tookapic - "green grass shoes" • stux - "shoe sport training" • Pexels - "feet footwear nike"

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