INTERNATIONAL FINANCE BMG704 (CRN”30739)

VAIBHAVI VIKAS DONGA

STUDENT ID: 10223617

COMPANY: NIKE. INC

TABLE OF CONTENT

I NTRODUCTION...............................................................................................................................................................2
BUSINESS OVERVIEW....................................................................................................................................................3
SECTION A COMPANY DEVELOPMENT ’S....................................................................................................................3
1.1 DEVELOPMENT: U.S.-CHINA TRADE WAR.......................................................................................................3
1.2 DEVELOPMENT: COVID19...............................................................................................................................4
SECTION B:....................................................................................................................................................................5
DIVIDEND POLICY...........................................................................................................................................................5
SOURCES OF FINANCE...................................................................................................................................................7
Equity:..................................................................................................................................................................... 7
Non-current liabilities:.............................................................................................................................................7
Capital structure of statement.................................................................................................................................8
Gearing Ratio...........................................................................................................................................................8
SECTION C:....................................................................................................................................................................9
PROFITABILITY RATIOS............................................................................................................................................9
EFFICIENCY RATIOS –............................................................................................................................................11
LIQUIDITY RATIOS....................................................................................................................................................12
SOLVENCY RATIOS.....................................................................................................................................................14
CONCLUSION................................................................................................................................................................15
REFERENCE................................................................................................................................................................. 17
APPENDIX..................................................................................................................................................................... 19

INTRODUCTION

Nike, Inc. is an USA based international firm headquarters in Beaverton, Oregon. Nike, Inc. is a

sports apparel company. It began as a running shoe company but quickly expanded into boxing

films, football pads, and tennis shoes, with a $ 10 billion annual profit. The company's revenue will

exceed $46.7 billion in 2022 ("Nike Brand Profile UK 2022"), up from $44.5 billion in 2021; it is one

of the world's most successful companies. Phil Knight and Bill Bowerman invented it in 1964 at a
track meet in Corte Madera. Nike currently has over,500 locations worldwide and manufactures

footwear for a variety of sports such as basketball, baseball, softball, and volleyball. This report

investigates Nike, Inc's financial performance. Similarly, changes that are affecting Nike, Inc.'s The

company's performance, as well as how it handles the potential risks with its financial services and

tip policy sources are discussed

BUSINESS OVERVIEW

Nike retails its goods via a variety of channels, including Nike-owned marketing stores, online

stores, independent traders, and proprietors. Nike, Jordan, Converse, and Hurley are among the

brands in the company's portfolio. Nike also develops and markets digital products and services,

such as Nike Training Club, Nike Run Club, and Nike SNKRS. Nike's financial statements show

strong growth and profitability for fiscal year 2021. Income, gross profit, operating income, and net

income all enhanced significantly from the previous year. Nike's strong financial performance

reflects the company's successful business model and strong brand reputation in the global sports

apparel and footwear market.

In recent years, Nike has faced criticism for its labour practices and sustainability efforts. However,

the firm has made significant attempts to tackle these concerns, such as investing in sustainable

materials and executing responsible sourcing practices. (Nike, 2023)

SECTION A COMPANY DEVELOPMENT ’S

Company development means the development which impacted the company financial statements

and how did company manage to overcome the development and what the marketing strategy

was used by the company with those development.

1.1 DEVELOPMENT: U.S.-CHINA TRADE WAR.

The US-China trade war which affected Nike's financial performance by increasing production

costs due to tariffs imposed by the US government on Chinese imports. In response, Nike shifted

production to other countries and invested in efficiency measures, but this did not fully offset the

impact of the trade war. Nike reported a 7% decrease in gross margin in its fiscal year 2019, which

ended in May 2019, due in part to the impact of the tariffs (Nike, 2019).

The marketing strategies were used while the trade war was too, they discovered that the Chinese

people are very trendy towards western trends Nike hit the revenue of $6208 million in 2019. Nike

has faced higher tariffs on products imported from China, resulting in higher costs for the

company. One of the company's key strategies has been to diversify its manufacturing base by

shifting production to countries such as Vietnam, Indonesia, and Thailand. Nike has also increased

its investments in automation and technology in order to eliminate the need for labour-intensive

manufacturing processes. To maintain its competitive advantage, Nike has prioritized innovation

and differentiation. The company has introduced several new products, including the Nike Adapt

BB self-lacing shoes, as well as invested in digital marketing campaigns to better reach

customers. In adapting to changing market conditions, the company has demonstrated resilience

and agility. (Clifford, 2019).

1.2 DEVELOPMENT: COVID19

The Covid19 pandemic is a next worldwide event that has had an influence on Nike, Inc's

economic performance.

The COVID-19 pandemic had a global impact on business results and operations throughout fiscal

2021. Because of mandatory lockdowns across North America, EMEA, and APLA geographies,

Nike, Inc organization and wholesale allies suffered momentary store shutting down and lowered

hours.
Nike's digital sales improved by 75% in the fourth quarter of 2020, contributing US$1 billion in

annual digital revenue in Greater China, Europe, the Middle East, and Africa. Nike's digital sales

increased 47% to US$5.5 billion in fiscal 2020, up from US$3.8 billion in fiscal 2019.

Nike Inc shifted to a digital marketing strategy to ensure its continued growth.

• Nike Inc.'s investment in its e-commerce and digital marketing strategy grew the business in the

pandemic, generating $44.5 billion in revenue for FY2021, a 19% increase over the previous year.

• Nike Inc. shifted its marketing promotion to digital fitness programmes, such as the Nike Training

Club app and Nike Run Club app, which offer at-home workouts and coaching, with many people

staying at home and closer to the gym.

SECTION B:

DIVIDEND POLICY

Define:

A company's dividend policy reveals the number of dividends paid to investors as well as the

interval between payments at which those dividends are remunerated. When a company makes a

profit, it must decide how to spend the cash. They can either keep the profits in the company (as

reserves on the income statement) or distribute them to stockholders in the form of shares.

Relevance school of Thought:

As previously stated, The dividend relevance theory is illustrated below. Companies consider

dividends to be earned income because investment returns are uncertain, based on the relevance

school of thought. By extension, Nike, Inc shareholders have a ravenous enthusiasm for

dividends. The Bird in Hand dividend theory (Gordon 1963) appears to apply in this instance.

Additionally, in the last ten years, Nike has not distributed more than half of its earnings. As a

result, it maintained a high dividend coverage ratio during this time period, indicating that its

dividend was sustainable. The dividend pay-out ratio denotes the percentage of EPS distributed to

shareholders as cash dividends. The dividend coverage ratio measures how several occasions a
company's earnings per share (EPS) is able to make dividend payments. to investors. (2022,

Probodhika and Ratnayake)

For the past three years, Nike, Inc has paid a dividend. Nike pays quarterly dividends, or four

times a year, according to (Investing.com, n.d.).

(Source: Investiment.com, 2023)

As shown in the above table Nike Inc, paid $1.36 ($0.34x4) in 2022 and in 2021 Nike Inc, paid

$1.22 whereas in 2020 Nike Inc, paid $1.1 from the above stated dividend values, it shows that

Nike Inc, dividend pas has increased. Where is current dividend per share is $0.34 and current

dividend yield is 1.15%.

 SOURCES OF FINANCE

Nike Inc. has various sources of finance, including equity and non-current liabilities. Equity

represents the funds that the company has raised from shareholders, while non-current liabilities

represent the funds that the company has borrowed for long-term use. Here, we will discuss the

changes in the elements of equity and non-current liabilities for Nike Inc. over the years 2022,

2021, and 2020, along with the reasons behind these changes.

Equity:

 In 2022, Nike's total equity was $12.945 billion, which was an increase from the previous

year's equity of $11.474 billion (Nike Inc., 2022).

 The enlarge in equity can be recognized to the company's strong economic

accomplishment, with net income increasing from $2.539 billion in 2021 to $4.305 billion in

2022 (Nike Inc., 2022).

 Nike Inc. has been consistently repurchasing shares, which has reduced the number of

exceptional stocks and increased the earnings per share. In 2022, the company

repurchased $6.3 billion worth of shares (Nike Inc., 2022).

Non-current liabilities:

 In 2022, Nike's total non-current liabilities were $14,310 million, which was an decrease

from the previous year's non-current Liabilities (Nike Inc., 2022).

 The increase in non-current liabilities can be attributed to the company's borrowing for long-

term use. (Nike Inc., 2022).

 Capital structure of statement

The traditional view of capital structure theory will be applied here as the non-current liabilities

were decrease and the gearing ratio is also low From the calculation of the gearing ratio, it is

proven that the company has a low gearing ratio in 2022 and the debt-to-equity ratio is 42.32%,

which is equal. It is good for the company's capital structure.

From the balance sheet of Nike, we gather the data that the long-term liability will decrease in

2022 as compared to 2021, and there is a slight difference in the overall debt of the company

(Nike Inc., 2022).

Gearing Ratio

Calculating the Gearing Ratio for Nike Inc, for 2022, 2021, 2020.
 SECTION C:

PROFITABILITY RATIOS

Return on Capital Employed

ROCE is an acronym that stands for Return on Capital Employed. It is a profitability ratio that

decides how much profit an organization can generate with the equity it has available. ROCE is

calculated by dividing EBIT by the amount of capital employed. (2022, n.d.)

Explaination:

NIKE, Inc. revenue before income taxes continued flat in fiscal 2022 on a currency-neutral basis,

as strong revenue and operating cost offset higher income and gross margin expansion.

Operating Profit Margin

The Operating Profit Margin, or OP Margin, is a ratio of profitability or performance that displays

the percentage of profit generated by a firm's management prior to actually interest, taxation, and

other charges are deducted. It is expressed as a percentage by dividing net profit by total revenue.

(2022 CFI Team)

Gross profit margin

The Gross Margin Ratio is a profit ratio that equates a firm's net income in terms of revenue. It

Evaluates a company's gain after deducting it expenses for selling products. Cost of Goods Sold

(COGS) (CFI Team 2022a)

Explanation:
From $19,962 million in fiscal 2021 to $21,479 million in FY22, our solidified gross profit improved

by 8% to $21,479 million. In fiscal 2022, gross margin increased by 120 basis points to 46.0%, up

from 44.8% in FY21.

Profitability within NIKE Direct biz, a relatively high mix of packed sales on a wholesale adjusted

basis, and favourable changes in net exchange rates of foreign currencies, including hedges,

drove the rise in gross margin for fiscal 2022.

EFFICIENCY RATIOS

Inventory Turnover

Inventory turnover, also known as the ratio of inventory turnover, is indeed the quantity of times a

business swaps out stock over a specific time frame. It takes into account the cost of goods sold in

comparison to the median stock over a year or just any specified duration. (2022b CFI Team)

Explanation:

NIKE, Inc. reported $8.4 million u.s. dollars in inventories, a 23 percent increase over the previous

year's period, due to rising in-transit stocks as a result of lengthened timeframes caused by

continuing problems with the supply chain, balance in part by increased demand from customers.

Receivable Turnover Days

The accounts receivable turnover ratio (also identified as "receivable turnover" or "debtors

turnover") is a fiscal efficiency ratio. It shows how instantly and effectively a company can

transform AR to immediate payment within a given accounting period. It is part of the overall
accounting cycle of progressing a corporation. (2021, tipalti.com)

Explanation:

Nike Inc's Receivable turnover ratio increased sequentially to 11.44, which is higher than the

company average. In the quarter ending February 28, 2022, Nike Inc's average collection period

remained unchanged at 32 days.

Only one company in the Consumer Discretionary sector had a higher receivable turnover ratio.

While the receivables turnover ratio was unchanged from the previous quarter,

LIQUIDITY RATIOS

Current Ratio

The current ratio assesses a firm's ability to reimburse current, or short-term, liabilities (debt and

payables) with current, or short-term, assets (cash, inventory, and receivables) (Mukhopadhyay
2015).

Explanation:

The current ratio of Nike Inc. increased from Q4 2022 to Q1 2023, then again from Q1 2023 to Q2

2023. Most of Nike's key metrics, such as the Liquidity Ratios, are part of an evaluation analysis

component that assists shareholders in positioning stocks that are currently dealing at prices. The

significant proportion of Nike's financial variables, including such Current Ratio, are piece of an

asset value process. this way that helps investors find stocks that are trading at prices that are

higher or lower than their real value. If the true value exceeds the market rate, Nike Inc is

understated and should be purchased.

Acid Test/Quick Test Ratio

The quick ratio evaluates a company's financial position by defining how current assets cover

outstanding debts. The quick ratio, on the contrary side, serves as a more conservative definition

of liquidity because it excludes all of the items in the current ratio. The ratio, also known as the

acid-test ratio, only includes assets that can be converted to cash in less than 90 days. (Folger,

2022)
Explanation:

Nike Inc. quick ratio improved from 2020 to 2021 but then slightly declined from 2021 to 2022.

SOLVENCY RATIOS

Interest Coverage Ratio

An interest coverage ratio (ICR) is a tool that controls how easily an entity can pay interest on

outstanding debts. The conclusions make it easier for lenders and creditors to conclude how

trustworthy the finance seekers would be if they were presented a large loan plus interest. (Team,

2022)

Explanation:
Due to repayments of liabilities of -24.74% Nike Inc improved Gearing Ratio in second quarter

2022 to 1.22, above the Nike Inc 's average gearing Ratio.

Within Apparel, Footwear & Accessories industry in the second quarter 2022 only one company

has achieved lower Leverage Ratio than Nike Inc during the second quarter 2022. While gearing

Ratio total ranking has deteriorated compared to the first quarter 2022 from 44 to 65.

The Equity Ratio

The equity ratio is a financial metric that measures how much leverage a company uses. It

examines asset investments and equity to conclude how well a company handles its debts and

funds its asset requirements. (Team, 2022)

Explanation:

Companies with equity ratios of.50 or less are measured leveraged; those with ratios of.50 or

more are measured moderate, as they receive more funding from equity than debt. A low equity

ratio indicates that the company obtained assets primarily through debt, which is widely interpreted

as an indication of greater financial risk.

CONCLUSION

In conclusion, Nike Inc. is a globally recognized company that has maintained its position in the

sports and apparel industry over the years. The company's focus on innovation, marketing, and

strategic partnerships has enabled it to stay ahead of its competitors. Nike has a diverse range of

sources of finance, including equity and non-current liabilities, which have contributed to the

company's financial stability. The company's financial statements, containing the income
statement, balance sheet, and cash flow statement, show a positive trend in revenue, operating

profit, and net income over the past few years. Nike's strong financial performance and market

position make it an attractive investment opportunity for investors. However, the company still

faces challenges such as the impact of changing consumer preferences, geopolitical risks, and

supply chain disruptions, which it continues to address through its strategic initiatives. Overall,

Nike's financial performance and market position demonstrate its ability to adapt to modifying

market requirements and remain competitive in the long term.

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APPENDIX

CONSOLIDATED STATEMENTS OF INCOME

Sources: Annual Report of Nike. Inc FY22 (Nike, Inc., 2022)

CONSOLIDATED BALANCE SHEETS

Sources: Annual Report of Nike. Inc FY22 (Nike, Inc., 2022)
EARNINGS BEFORE INTEREST AND TAXES

Sources: Annual Report of Nike. Inc FY22 (Nike, Inc., 2022)