Aleksandar Kovacevic December 6, 2016

NIKE INC. INTRODUCTION

NIKE was named after the Greek goddess of victory. NIKE was incorporated on

September 8, 1969, is engaged in the design, development, marketing and selling of athletic

footwear, apparel, equipment, accessories and services. The Company's operating segments

include North America, Western Europe, Central & Eastern Europe, Greater China, Japan and

Emerging Markets. The Company's portfolio brands include the NIKE Brand, Jordan Brand,

Hurley and Converse. The Company sells its products to retail accounts, through its retail stores

and Internet Websites, and through a mix of independent distributors and licensees across the

world. The Company's products are manufactured by independent contractors.

As of May 31, 2016, the Company focused its NIKE brand product offerings in nine

categories: Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Men's Training,

Women's Training, Action Sports, Sportswear (its sports-inspired lifestyle products) and Golf.

Men's Training includes its baseball and American football product offerings. The Company also

markets products designed for kids, as well as for other athletic and recreational uses, such as

cricket, lacrosse, tennis, volleyball, wrestling, walking and outdoor activities. NIKEs athletic

footwear products are designed primarily for specific athletic use. Its products are also worn for

casual or leisure purposes. The Company also sells sports apparel. NIKE also markets apparel

with licensed college and professional team and league logos.

Top competitors for NIKE, Inc. are ATHLETICS, INC., Puma SE, and Adidas AG.

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Nike Inc.s Working Capital Comparative Schedule is computed in Table 15
(attached). Cash is a much more liquid resource than inventory, as well as any other
current assets, therefore the increase of cash and cash equivalents from 16.2% in 2014
to 24.1% in 2015 of the total current assets, in relation to the decrease in inventory from
29% in 2014 to 27.1% in 2015, indicates that Nike Inc.s working capital in 2015 is more
liquid than in the prior year, a favorable shift for short-term creditors in the company.
Through the use of dollar change and percentage change, followed by component
percentages, one can tell that Nike Inc.s working capital difference in 2015 from 2014 is
desirable due to the proof of the current assets cushion over the current liabilities,
suggesting that the company is trustworthy in terms of their ability to pay back loans and
dividends to its shareholders.

Accounts receivable turnover rate indicates how quickly a company converts its
accounts receivable account into cash. This turnover rate is one half of the operating
cycle and is therefore significant. Accounts Receivable Turnover Rate for Nike Inc. can
be seen in Table 1, below.

Table 1: Accounts Receivable Turnover Rate

Accounts Receivable Turnover Rate 2015 2014

All dollar amounts
are in millions
Net Sales (a) $30,601 $27,799
Accounts Receivable, Beginning of year (b) $3,434 $3,117
Accounts Receivable, End of year (c) $3,358 $3,434
Average Accounts Receivable (b+c)/2 (d) $3,396 $3,275
Accounts Receivable Turnover per year (a/d) 9.0 times 8.5 times
Average Number of days to collect Accounts
Receivable 41 days 43 days

There has been no big change in the average time to collect receivables, and
therefore the ultimate comprehension depends on Nikes credit terms and financial
activity right before the end of the year. For example, if Nikes management gave out a
30-day credit term to one of its customers in December of 2015, that would have
changed the outcome of accounts receivable at the end of the year, and consequently
also the accounts receivable turnover rate.

Inventory Turnover Rate is similar to accounts receivable turnover rate, in that it

calculates the amount of time it takes the company to sell inventory but not how

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quickly inventory turns in cash. Nikes Inventory turnover rate can be seen in table 2,
below.

Table 2: Inventory Turnover Rate

Inventory Turnover Rate 2015 2014

All dollar amounts are
in millions
Cost of Sales (a) $16,534 $15,353
Inventories, start of year $3,947 $3,484
Inventories, end of year $4,337 $3,947
Average inventories (b) $4,142 $3,716
Average inventory turnover per year (a/b) 4 times 4.1 times
Average number of days to sell inventory 91 days 89 days

The trend shown here from 2014 to 2015 is clearly steady, as there was no big
change in the ratio of average inventory turnovers per year, as well as no change in the
average number of days to sell inventory proving that operations are being handled
the same regardless of the change (decrease) in the cost of sales.

Creditors though, are primarily interested in the companys ability to generate

cash:
Figure 1: Operating Cycle
The operating cycle of a company is the
period of time it is required for the company to
convert its inventory into cash. This is done by
adding the average number of days required to
turn over inventory (See table 2) with the average
number of days required to collect receivables
(See table 1). In Nikes case, the number of days
for turnover rate is 41 days in 2015, while
accounts receivable is 91 days in 2015, and
therefore, their operating cycle for 2015 adds up to 132 days, which is the same as in
2014, 132 days. This indicates that no change in creditors approach to investing in the
company will be taken; neither long or short-term. Nikes operating cycle can be seen in
Table 3, below.

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Table 3: Operating Cycle

Operating Cycle 2015 2014

All dollar amounts are in millions
Average number of days to turn over
inventory 91 days 89 days
Average number of days to collect accounts
receivable 41 days 43 days
Average number of days to complete
operating cycle 132 days 132 days

Current ratio is used by creditors to determine the companys short-term debt-

paying ability. Most commonly, short-term creditors use the current ratio in order to
determine how liquid the company is, and henceforth if the company is a good risk for
investment. The higher the current ratio of a company, the more liquid it appears to be.
Refer to Table 4 (below) to see Nikes Current Ratio table.

Table 4: Current Ratio

Current Ratio 2015 2014

All dollar amounts in millions

Total Current Assets (a) $15,976 $13,696

Total Current Liabilities (b) $6,334 $5,027

Current Ratio (a/b) 2.5 2.7

Nikes current ratio indicates as unfavorable at first glance for potential investors.
Even though 2015 proved a low current ratio of the company, it was an decrease and
hence no improvement from the prior year (from 2.7 in 2014 to 2.5 in 2015). Another
point on the companys current ratio is Nikes short operating cycle (see table 3), which
proves that cash comes in relatively fast from the turnover of inventory and collection of
accounts receivable.

Debt ratio is the basic measure of the safety of creditors claims and potential
long-term risk. It indicates how much the company is more dependent on creditors over
stockholders. The calculation of Nikes Debt Ratio can be seen in Table 5, below.

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Table 5: Debt Ratio

Debt Ratio 2015 2014

All dollar amounts in millions
Total Liabilities (a) $8,893 $7,770
Total Assets (b) $21,600 $18,594
Debt Ratio (a/b) 41% 42%

The debt ratio of Nike computed above, shows the companys high use of
leverage, or in other words, it indicated that a heavy proportion of the companys
financial transactions are coming from amounts provided by creditors.

From the point of view of the common stockholders, the increase, and generally
high debt ratio for Nike, shows that management is maximizing benefits from creditors
and liabilities. As long as the Return on Assets (See table 8) is greater than the rate of
interest paid to creditors (normally between 3 and 8% for Nike and throughout the
United States).

From the point of view of creditors, a lower debt ratio is better, and therefore
Nikes high and increasing debt ratio is unfavorable, as the margin of protection to the
creditors when put up against a shrinkage of the assets is high.

Earnings Per Share, also known as EPS, is one of the most popular and
acceptable accounting ratios. Trends in EPS from one year to another, as well as the
expected earnings, are each major factors that affect the market value of a companys
shares.

Table 6: Earnings Per Share

Earnings Per Share 2015 2014

All dollar amounts (except per share) are in
millions
Net income $3,273 $2,693
Diluted weight average common shares
outstanding $884.4 $905.8
Earnings Per Share diluted $3.7 $2.97

In Table 6, above, Nikes Earnings Per Share are calculated for the years 2014
and 2015. As shown, EPS decreasing by $0.62, a decline of 14 percent from 2014 to
2015. A decrease of EPS is unfavorable for the stockholders of Nike, which shows a

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downfall of profitability of the company, and may bring up potential doubts in regards to
the companys growth in the future.

Price-Earnings Ratio reflects investors expectations of the companys future

performance in regard to earnings of stockholders (EPS) versus the market price. Nikes
P/E Ratio can be seen in Table 7, below.

Table 7: Price-Earnings Ratio

Price-Earnings Ratio 2015 2014

Market Price-year end stock prise (a) $101.67 $76.91
Earnings Per Share (b) $3.7 $2.97
Price-Earnings Ratio (a/b) 27.5 25.9

A moderately high Price-Earnings ratio indicates that the earnings of Nike are
expected to increase, and because the ratio is still under 30, the market value of shares
is considered to be fair. In comparison to 2014, Nikes market value rised by almost 8
dollars, a 9 percent increase, therefore that alongside the rise in price earnings ratio
indicates that earnings, and hence also earnings per share, should rise for the next
financial accounting period.

Return on Assets measures the ability of management to utilize assets,

irrespective of whether debt or equity financed the assets. It is states by Williams, et al,
that the return on average total assets of successful businesses earn a return of 15
percent or more. Refer to Table 8 for Nikes Return on Assets calculation.

Table 8: Return on Assets

Return on Assets 2015 2014

All dollar amounts in millions
Operating Income (a) $4,175 $3,680
Total assets, start of the year (b) $18,594 $17,545
total assets, end of the year $21,600 $18,594
Average investment in assets (b+c)/2 $20,097 $18,070
Return on Assets (a/d) 21% 20%

Return on assets stayed the same from 2014 to 2015, proving that management
kept the same tactics that were working previously, going on into following years.
Regardless of the decrease in operating income and total asset from year to year, the
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company made sure to keep it at a high rate. Nike evidently is well managed and has
promising future prospects, making their return on assets higher than the rate of interest
paid to creditors, and therefore, as shown in the companys debt ratio, because the
return on assets is higher than the rate of interest paid to creditors, Nike can be
considered as using maximum potential benefits that they are capable of.

The Return on Stockholders Equity solely focuses on the return earned by

management on the stockholders investments. ROE, as it is also known, is the net
income as a percent of stockholders equity, and henceforth how much is the net income
worth in relation to the investments of owners. Refer to Table 9 attached for Nikes
Return on Equity table.

Table 9: Return on Stockholders' Equity

Return on Stockholders' Equity 2015 2014

All dollar amounts are in millions
Net Income (a) 3273 2693
Common stockholders' equity, start of the
year (b) 10824 11081
Common stockholders' equity, end of the year
(c) 12707 10824
Average common stockholders' equity =
(b+c)/2 (d) 11765.5 10952.5
Return on common stockholders' equity (a/d) 28% 24.5%

Traditionally, it is expected for investors to get back 12 percent or more from

large and financially strong companies like Nike Inc. Therefore, the investors of Nike
Inc. are already receiving a fair return. When comparing with the prior year, in 2015
there was quite a big incline, more specifically over half billion dollars in net income, and
therefore a 3.5 percent increase of the companys return on common stockholders
equity. This is obviously favorable for common stockholders, because their investment
is getting a bigger rate of return than in the prior year.

A companys percentage of dividend yield is important to the investors whom

mainly desire to maximize the dividend revenue from their investment. A computation of
Nikes Dividend Yield percentage is shown in Table 10, below.

Market Value Per Dividends Per Dividend Yield

Dividend Yield Share Share Percentage

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Date
May 31,2015 $101.67 $1.08 1.06%
May 31,2014 $76.91 $0.93 1.21%
Table 10: Dividend Yield

Year 2015 has seen an increase of both Market Value per Share, as well as
Dividends per Share, equally, making the dividend yield percentage of the company the
same from the initial year to the latter (2014 to 2015). The consistent Dividend Yield
percentage shows that the companys old stockholders are keeping a steady
investment, while the new incomers (in 2015) are receiving higher dividends per share
than other stockholders in the prior years, but they are equal to the investment of the old
stockholders, which is shown through the dividend yield percentage making the
companys shares worth the same for an investor in 2014 or 2015. See Table 11 for the
dollar and percentage changes in the companys dividend yield.

Table 11: Market Value and Dividends per Share Dollar and Percent Changes

Market Value and Dividends per

Share Dollar and Percent Percentage
Changes Dollar Change Change
2015 over 2014 2015 over 2014
Market Value Per Share $24.76 24.35%
Dividends Per Share $0.15 13.9%

For the stockholders who are looking to sell their shares the increase in market
value per share is obviously a positive increase, and as seen in Table 11, the
stockholder who sells his stock to a new investor will earn 24.35 percent of his original
investment, or almost 25 dollars per share that he sells.

On the other hand, for stockholders who tend to be long-term in the company, the
increase in dividends per share is what interests them. A favorable increase of 24.35
percent in 2015s dividends per share means that for each share, the stockholder will
earn 24.35 percent more than he did in the previous year.

For investors to get a clear picture of Nikes dividends standing, and more
importantly dividend yield percentage, a comparison with a competing company should
be done in order to decide what is the better investment. In Nikes case, Adidas
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Company are the biggest competitors in the industry, and therefore a potential investor
should look at each of these two companies. See Table 12 for Adidas Dividend Yield.

Table 12: Dividend Yield for Adidas Company

Dividend Yield
Market Value Per Dividends Per Dividend Yield
Adidas Company Share Share Percentage
2015-year end 89.91 1.6 1.77%
2014-year end 57.62 1.5 2.60%

Adidas Companys Market value per share is under of Nikes, and but not their
dividends per share. This smaller market value per share of the company may attract
many more investors. At the end of the day though, a potential investor that is looking to
invest one thousand dollars in a company, is not as interested in the market value per
share, or even dividends per share, but in the computation of both of them put together:
The companys dividend yield percentage in relation to the market value per share.

An investor looking to invest one thousand dollars in the Adidas Company would
be able to buy 11 shares, while only 9 share in Nike Inc., in the end of 2015. Buying 11
shares of the Adidas Company, an investor would spend 989 dollars, and receive
dividends worth 17.6 dollars per year, on the 1.77 Dividend Yield percentage of the
company in 2015. An investor in Nike Inc., on the other hand, would buy 9 shares of the
company for a lower price, 915 dollars, and receive dividends of 9.72 dollars per year
on the companys 1.06 dividend yield percentage. An investor looking at the market
value price, and henceforth potentially make a profit from buying and then selling share,
Adidas would be a better investment. Nikes rate of increase for its market value per
share from 2014 to 2015 is 24.35 percent, while Adidas companys is only a 35.9
percent increase. An investor that bought 9 shares of the Nike Company for 692 dollars
in 2014 would be able to sell all those shares for 915 dollars in 2015, making a profit of
223 dollars (not including potential dividends). On the other hand, an investor buying 11
shares of Adidas in 2014 for 634 dollars in 2014, would sell them for 989 dollars in
2015, and therefore make a profit of 355 dollars (not including potential dividends).
Therefore, the investor would make 132 more dollars on the investment and selling of
his shares in Adidas over the Nike Company.

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Interest coverage ratio is for long-term creditors and bondholders. This ratio
shows if the company earns enough income to cover its annual interest obligations, and
preferably by a comfortable margin. See table 13 for the computation of Nikes Interest
coverage ratio.

Table 13: Interest Coverage Ratio

Interest Coverage Ratio Column1 Column2

2015 2014
Operating Income (a) $4,175 $3,680
Annual Interest Expense (b) $28 $33
Interest Coverage Ratio (a/b) 149.1 times 111.5 times

An interest coverage above 20 to 1 is considered strong, and proving that even

though Nike had a decrease of income as well as interest coverage ratio from 2014 to
2015, bondholders of the company should still feel confident about their investments.
Potential new-suitors on the other hand, can also be con confident from this ratio, which
proves that Nikes can cover their interest expenses 149 times in the end of 2015,
making certain that any bondholders investments are safe.

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Nike Conclusion

Nike had a increase in many financial aspects and ratios during the year 2015,
showing that it was financially successful and strong as the year before. When looking
at the companys statement of income (see consolidated statement of income attached)
one can notice a minor increase in net revenue, cost of sales, as well as selling,
general, and administrative expenses; proving that they took a small effort to increase
their sales and expenses during the year. This increase cause for quite a major increase
in the companys Earnings Per Share (see table 6). There was no change in the
average number of days to complete the operating cycle. The debt ratio had an
decrease, shifting from 42 percent to 41 percent of assets covered by debt (or
liabilities). This happened due to the companys increase in total assets and increase in
total liabilities.

The company had many fortunate changes that show a promising future. See
Table 14 for Nikes summary of earnings and Dividend Data. The companys Market
Value per share, and cohesively also the Dividends per Share increased by an equal
24.35 and 13.9 percent, respectively (see Table 11 for dollar and percent changes). The
increase in price-earnings ratio, which represents the investors expectations
concerning the companys future performance, indicates a potentially bright future with
improvements of the companys earnings per share, market value per share, and
consequently also dividends per share. The increases and theoretically promising future
increases in these categories, are what investors are looking at when they want to
invest. It can be assumed that all investors make investments in a company for their
individual financial benefits, and therefore, the increases in market value, dividends, and
earnings, all respectively per share, allow for all types of investors, long or short term, to
be attracted to investing in Nikes stocks.

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Table 14: Summary of Earnings and Dividend Data

Summary of Earnings and Dividend Data

Market Value Earnings Per Price-Earnings Dividends per Dividends Yield

Date Per Share Share Ratio Share Percentage

May 31, 2014 $76.91 $2.97 25.9 $0.93 1.06%

May 31, 2015 $101.67 $3.70 27.5 $1.08 1.21%

Table 15: Comparative Schedule of Working Capital

Nike, Inc.
Comparative Schedule of Working Capital
As of May 31, 2015 and 2014
(In Millions $) Increase/Decrease Percentage of total
current items
Current Assets: 2015 2014 Dollars Percent 2015 2014
Cash and Cash $3852 $2220 $1632 42% 24.1% 16.2%
Equivalents
Marketable Securities $2072 $2922 ($850) (41%) 13% 21.3%

Accounts and Notes $3358 $3434 ($76) (2%) 21% 25%

Receivables
Inventories $4337 $3947 $390 9% 27.1% 29%
Prepaid Expenses $1968 $818 $1150 58% 12.3% 6%
Different income taxes $389 $355 $34 9% 2.5% 2.6%
Total Current Assets: $15976 $13,696 $2,280 14% 100% 100%
Current Liabilities:
Current portion on long- $107 $7 $100 93.5% 1.7% 0.14%
term debt
Notes payable $74 $167 ($93) (125%) 1.2% 3.32%
Accounts payable $2131 $1930 $201 9.4% 33.6% 38.39%
Accrued liabilities $3951 $2491 $1460 36% 62.4% 49.55%
Income taxes payable $71 $432 ($361) (508%) 1.1% 8.6%
Total Current Liabilities: $6,334 $5,027 $1307 20.6% 100% 100%

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