Student Name: Kylene Wee Jo Yeen Student ID : 0309355

Student Name: Choo Choy LengStudent ID: 0310096

FNBE0145Intake : September 2012

CONTENTS

1. Introduction

1.1 Company Background 1.2 Recent Developments

2. Ratio Calculations & Interpretation.

2.1 Profitability2.2 Financial Stability

3. Price/ Earnings Ratio & Investment Recommendation

4. Appendix

4.1 Profit & Loss Statement for Nikei. 2011 Annual Profit & Loss Statementii. 2012 Annual Profit & Loss Statement

4.2 Balance Sheet for Nikei. 2011 Annual Balance Sheetii. 2012 Annual Balance Sheet

5. References

In the 21st century, Nike is known as one of the most powerful companies worldwide. (Carbasho T., 2010) They specialize in making footwear, apparels and equipment. (Nikebiz, 2013) Nike was founded in 1972. (Lussier N.R, 2008) Phil Knight started by importing track shoes from Japan and would sell them off from his car boot and by the 1980s, Phil Knight had established Nike, and the company had already begun designing and making their own running shoes. (Lussier N.R, 2008) Nike was showered with popularity, thanks to their successful launch of Nike Air technology in the Tailwind running shoe in 1979. (NikeInc, 2011) By the end of 1980, Nike had become a public traded company. (NikeInc, 2011)

Nike has made an announcement on the 9th of January 2013, that they have new plans of developing a new headquarters for Nike’s employees in Shanghai, China. (NikeInc, 2011)

Profitability Ratio Analysis for the years 2011- 2012

Profitability Ratio 2011 2012 Interpretation

Return on Equity (ROE)

21.8% 22.0% During the period of 2011 and 2012, the ROE has increased from 21.8% to 22.0%. This means that Nike Company is getting more returns on the capital.

Net Profit Margin (NPM)

10.2% 9.2% During the period of 2011 and 2012, the NPM has decreased from 10.2% to 9.2%. This means that the company’s ability to control the overall expenses is getting worse.

Gross Profit Margin (GPM)

45.5% 43.3% During the period of 2011 to 2012, the GPM has decreased from 45.5% to 43.3%.This means that the company’s ability to control the Cost Of Goods Sold (COGS) is getting worse.

Selling Expenses Ratio (SER)

16.0% 15.3% During the year of 2011 and 2012, the SER has decreased from 16.0% to 15.3%. This shows that the company’s ability to control the selling expenses is getting better.

General Expenses Ratio (GER)

16.0% 15.3% During the year of 2011 and 2012, the GER has decreased from 16.0% to 15.3%. This shows that the company’s ability to control the general expenses is getting better.

Financial Expenses Ratio (FER)

0.019% 0.012% During the year of 2011 and 2012, the FER has decreased from 0.019% to 0.012%. This shows that the company’s ability to control the financial expenses is getting better.

Calculation of Profitability Ratios

Profitability Ratios

2011 2012

ROE {2133 ÷ [(9843 + 9754) / 2]} × 100%

= 2133 / 9798.5 × 100%

= 21.8%

{2223 ÷ [(10381 + 99843) / 2] × 100%

= 2223/ 10112 × 100%

= 21.9%

NPM 2133/ 20862 × 100%

= 10.2%

2223/ 24128 × 100%

= 9.2%

GPM 9508/ 20862 × 100%

= 45.5%

10471/ 24128 × 100%

= 43.3%

SER [(6693/2) ÷ 20862] × 100%

= 3346.5/ 20862 × 100%

= 16.0%

[(7431/2) ÷ 24128] × 100%

= 3715.5/ 24128 × 100%

= 15.3%

GER [(6693/2) ÷ 20862] × 100%

= 3346.5/ 20862 × 100%

= 16.0%

[(7431/2) ÷ 24128] × 100%

= 3715.5/ 24128 × 100%

= 15.3%

FER 4/ 20862 × 100%

= 0.019%

3/ 24128 × 100%

= 0.012%

Financial Stability for the years 2011- 2012

Stability Ratios 2011 2012 Interpretation

Working Capital 2.85 : 1 2.98 : 1 During the period of 2011 and 2012, the working capital has increased from 2.85: 1 to 2.98: 1. This means that the company’s ability to pay the current liabilities with current assets is getting better. Furthermore, it also satisfies the minimum 2: 1.

Total Debt 34.4% 32.9% During the period of 2011 and 2012, the total debt has decreased from 34.4% to 32.9%. This means that the company is carrying less debt.

Inventory Turnout 4.8 days 4.5 days During the period of 2011 and 2012, the inventory turnout has decreased from 4.8 days to 4.5 days. This shows that the company is selling their goods faster than the previous year.

Debtor Turnover 7.2 days 7.5 days During the period of 2011 and 2012, the debtor turnover has increased from 7.2 days to 7.5 days. This means that the company is slower in collecting debts compared to the previous year.

Interest Coverage 534.3 times 742 times During the period of 2011 and 2012, the interest coverage has increased from 534.3 times to 742 times. This means that the company’s ability to pay its interest expenses is getting better.

Calculation of Financial Stability Ratios

Stability Ratios 2011 2012

Working Capital 11297 / 3958

= 2.85 : 1

11531 / 3865

= 2.98 : 1

Total Debt 5155 / 14998 × 100%

= 34.4%

5084 / 15465 × 100%

= 32.9%

Inventory Turnout

11354 ÷ [(2715 + 2041) / 2]

=11354 / 2378

= 4.8 days

13657 ÷ [(3350 + 2715) / 2]

= 13657 / 3032.5

= 4.5 days

Debtor Turnover 20862 ÷ [(3138 + 2650) / 2]

= 20862 / 2894

= 7.2 days

24128 ÷ [(3280 + 3138) / 2]

= 24128 / 3209

= 7.5 days

Interest Coverage (2133 + 4) ÷ 4

= 534.3 times

(2223 + 3) ÷ 3

= 742 times

Price / Earnings Ratio

Price / Earnings Ratio

P/E Ratio = 53.64 / 2.39

= 22.4

Interpretation: The latest P/E ratio of Nike Company is 22.4. This means that the investor needs to wait a longer period to claim back his original principal. In this case, the investor would need to wait for more than 22 years.

With reference to the above calculations and interpretations, we have come to a decision that Nike Inc. is a profitable and stable company on its own, as they are getting more returns on capital, they control their expenses well and they carry less debt, when comparing the years 2011 and 2012. However, it is not advisable to invest in this company as the P/E ratio for Nike is above 15. The minimum requirement for an investor to invest in a company is to ensure that the P/E ratio is less than 15.

Appendix

Profit & Loss Statement for Nike, 2011

Profit & Loss Statement for Nike, 2012

Balance Sheet for Nike, 2011

( NikeInc, 2013)

Balance Sheet for Nike, 2012

( NikeInc, 2013)

References

1.Carbasho T. (2010) Corporations That Changed The World: Nike. California, Santa Barbara .

2.Frankwood , Sangster A.(2002) Business Accounting. Prentice Hall

3.Lussier N.R (2008) Management Fundamentals: Concepts, Applications, Skill Development. Cengage Learning

4. Millichamp A. (2003) Foundation Accounting. DP publications Ltd.

5. Nike Biz. (2013) Nike Brand Factories and Regional Products. [Online] Retrieved from: http://nikebiz.com [Retrieved on 10th January 2013]

6 Nike Inc. (2011) 1980-1989 A Decade of Transition and Rededication. [Online] Retrieved from: http://nikeinc.com [Retrieved on 10th January 2013]

7. NYSE:NKE (2013) Market Share Price of Nike.[Online] Retrieved from: http://www.google.com/finance?q=NYSE:NKE [Retrieved on 16th January 2013]