Facebook Corporate Analysis (Finance Only)

Introduction

Brief History 3

Income Statement Analysis 5

Balance Sheet Analysis 6

Liquidity Ratios 7

Current Ratio 7

8

Quick Ratio/Acid-Test Ratio 8

Asset Management 9

Inventory Turnover 9

Fixed Assets Turnover 10

Profitability Ratios 11

Return on Assets % 11

Return on Equity % 12

Gross Margin 13

Operating Profit Margin 14

Profit Margin 15

Financial Leverage Ratios 16

Long-Term Debt Ratio 16

Times Interest Earned/Interest Coverage 17

Beta Coefficient 19

Bibliography 20

Appendix A 21

Income Statement 2009-2013 21

Balance Sheet 2009-2013 22

Brief History

Phil knight, a runner, and Bill Bowerman, a track coach who tinkered with shoe designs, met at the University of Oregon in 1957. The two men formed blue ribbon sports in 1962 in an effort to make quality American running shoes. The next year they began selling shoes, manufactured by Japanese manufacturer Onitsuka Tiger, out of cars at track meets.

The company became Nike in 1972, named for the Greek goddess of victory. The Nike "swoosh" logo was designed by a graduate student named Carolyn Davidson, who was only paid $35 for her service. The same year Nike broke with their Japanese manufacturer in a nasty dispute.

At the 1972 Olympic trials in Oregon, knight and Bowerman persuaded some of the marathoners to wear Nike shoes. When some of these runners placed, the two advertised that Nikes were worn by "four of the top seven finishers."

Nike expanded with shoes for other sports, introducing the Air Jordan basketball shoe in 1985 (named after the basketball star, Michael Jordan) and the cross trainer two years later. Nike's famous "just do it" slogan was introduced in 1988.

In 1992 Nike opened its first Niketown store. It acquired can star sports, such as hockey equipment. Nike signed 20-year-old golf phenomena Tiger Woods to a $40 million endorsement contract that year. Also in 1995 Nike acquired a license to place its logo on NFL uniforms; however, instead of renewing the contract, Reebok took over this license in 2002.

Nike launched an athletic footwear and apparel division in 1997. Prompted by falling sales in Asia, Nike cut 1,200 jobs in 1998 (about 5% of its workforce) to cut costs. With demand for athletic shoes weakening, in 1999 Nike reported its first drop in sales since 1994. Also in 1999 the company began introducing “store-within-a-store boutiques.” When Bowerman died in 1999, Nike released a line of running shoes in his honor.

Present Day

In 2000 the company launched a line of athletic electronics, including mp3 players, heart monitors, and two-way radios. A full year before Tiger Woods' contract expired, Nike in 2000 signed the golfer to a five-year contract.

Nike opened its first Nike goddess store in Newport Beach, California, in October 2001. In September 2003 Nike acquired competitor converse and left it as a separate operating unit to keep the converse name intact. In October Bauer Nike hockey announced the closing of its hockey stick factory in Ontario and a staff reduction at its Quebec facilities.

The company announced a partnership in 2007 with foot locker to launch a new store focused purely on basketball. The stores sell only Nike products and future styles are planned over the next three years. Nike in December 2007 also sold off its Exeter brands group, including the starter brand, to iconic brand group for $60 million in cash as part of a strategy to divest lagging brands in its portfolio.

In March 2008 Nike acquired UK-based global soccer brand Umbro for about $576 million. The deal provided Nike with a foundation in soccer in the US and England and positioned the company to enter emerging soccer markets, such as China, Russia, and Brazil. Moreover, Umbro, which sells directly and through licensees, brought high-profile sports marketing agreements with soccer players, teams, and leagues and its own global reach.

To help fund its soccer purchase, Nike shed its hockey business. More than a dozen years after acquiring Bauer Nike hockey, Nike sold the hockey unit in early 2008 to a group of investors for $200 million. In February 2013 Nike sold Cole Haan to apex partners for $570 million.

Income Statement Analysis

Based on the Income Statement acquired from a 10K Annual Report, the company has been going in a positive direction between fiscal year 2009 and fiscal year 2013. Seeing as how Nike has sold the Hockey Industry of its Incorporation, and has decided to focus on producing more soccer equipment, the yearly revenue beginning in 2009 has steadily increased from $19,176,000.00 to $25,313,000.00 in 2013. In addition, Nike has been able to keep low costs of goods sold by outsourcing their products to countries that provide extremely cheap labor such as China and Singapore. Between 2009 and 2013, the costs of goods sold have only increased by $4,080,000.00. Although this seems like an extraordinary amount of money, compared to its return on profits, Nike seems to be strategizing well by outsourcing their manufacturing. Even more so, Nike’s Gross Profit is also climbing in a positive direction. Seeing as how the gross profit is the number representing the revenue amount left over after it has been reduced by its costs of goods sold, it says a lot, when not only is a company’s gross profit relatively high, but also consistently climbing year after year.

Balance Sheet Analysis

Based on the Balance Sheet acquired from a 10K Annual Report, the company has been going in a positive direction between fiscal year 2009 and fiscal year 2013. Seeing as how, between 2009 and 2013, Nike has let go of some of its industries, and has added more sponsorships and created more industries, it would make sense for Nike’s total assets to increase steadily. The biggest increase, within total assets, has been total current assets with main increases being attributed to receivables and inventories. Total liabilities have increased as well, but in a small, incremental way. Important categories within liabilities that have had little change are current liabilities and accounts payable. This is probably attributed to the letting go of certain industries and the more than manageable costs of manufacturing by outsourcing to countries that encourage cheap labor. As Nike grows in size, it would only make sense for stockholder’s equity to increase as well. Due to the incorporations growth, the stockholders are required for the responsibility of those industries or sponsorships.

Liquidity Ratios

The current ratio is the best form in measuring the short-term liquidity. The unit of measurement is either dollars or times. For example, in 2009, Nike has $2.97 in current assets in ever $1.00 in current liabilities. To a creditor – particularly a supplier – the higher the current ratio, the better. Seeing as how, in 2009, the current ratio starts out pretty high and only decreases from 2010 to 2011, the current ratio seems to be a good indicator that Nike’s liquidity is in good standing.

Current Ratio = Current Assets/Current Liabilities

2009: 9,734,000/3,277,000 = 2.97

2010: 10,959,000/3,364,000 = 3.26

2011: 11,297,000/3,958,000 = 2.85

2012: 11,531,000/3,865,000 = 2.98

2013: 13,626,000/3,926,000 = 3.47

Inventory is often the least liquid current asset. Therefore, when inventory is subtracted from current assets in this solution, any company will be able to see if a large part of their liquidity could be tied up in slow-moving products. The results from the quick ratio suggest that Nike is producing too much inventory. According to 2011 and 2012, Nike should keep in minds that a large portion of their liquidity could be help up in their slow-moving inventory.

Quick Ratio/Acid-Test Ratio = (Current Assets – Inventories)/Current Liabilities

2009: (9,734,000-2,357,000)/3,277,000 = 1.93

2010: (10,959,000-2,041,000)/3,364,000 = 2.32

2011: (11,297,000-2,715,000)/3,958,000 = 1.94

2012: (11,531,000-3,350,000)/3,865,000 = 1.82

2013: (13,626,000-3,434,000)/3,926,000 = 2.31

Asset Management

This ratio offers an idea on how many times certain inventory is being turned over in one year. In this case, the lower the number, the better. Seeing as how, the number is beginning to decrease in 2012, Nike must have changed the way in which they sell products. This could be done through advertising or special promotions to the “best seller” as an incentive to increase sales projections.

Inventory Turnover = Cost of Goods Sold/Inventory

2009: 10,572,000/2,357,000 = 4.41

2010: 10,214,000/3,041,000 = 4.64

2011: 11,354,000/2,715,000 = 4.77

2012: 13,657,000/3,350,000 = 4.50

2013: 14,275,000/3,434,000 = 4.21

This is considered a big picture ratio where, for example, in 2009, for every $1.00 in fixed assets (noncurrent assets – accumulated depreciation), Nike generates $9.96. For this ratio specifically, higher numbers are preferred. Although Nike has extremely high numbers in this ratio, the number is decreasing based off of the increase in net fixed assets. This could be due to Nike receiving another sponsorship.

Fixed Assets Turnover = Sales/Net Fixed Assets

2009: 19,176,000/1,925,301 = 9.96

2010: 19,014,000/1,944,171 = 9.78

2011: 20,862,000/2,023,472 = 10.31

2012: 24,128,000/2,197,449 = 10.98

2013: 25,313,000/2,365,700 = 10.70

Profitability Ratios

Return on Assets % = (Net Income/Total Assets) x 100

2009: (1,487,000/13,250,000) x 100 = 11.57%

2010: (1,907,000/14,419,000) x 100 = 13.78%

2011: (2,133,000/14,998,000) x 100 = 14.50%

2012: (2,223,000/15,465,000) x 100 = 14.59%

2013: (2,485,000/17,584,000) x 100 = 15.04 %

Return on Equity is a measure of how the stockholders fared during the year. This ratio is measuring the true bottom-line performance. For this reason, these measures should properly be called return on book equity. Seeing as how this ratio is to please the eyes of the stockholders, high numbers are preferable. Based off the results, Nike has an increasing Return on Equity. This is probably due to the continuing increase in net income and the continuing increase in common equity

Return on Equity % = Net Income/Common Equity x 100

2009: (1,487,000/8,693,000) x 100 = 18.00%

2010: (1,907,000/9,754,000) x 100 = 20.67%

2011: (2,133,000/9,843,000) x 100 = 21.77%

2012: (2,223,000/10,381,000) x 100 = 21.98%

2013: (2,485,000/11,156,000) x 100 = 23.08 %

Cost of sales (also known as cost of goods sold or COGS) includes variable costs and fixed costs directly linked to the sale, such as material costs, labor, supplier profit, shipping-in costs (cost of getting the product to the point of sale, as opposed to shipping-out costs which are not included in COGS), etc. It does not include indirect fixed costs like office expenses, rent, administrative costs, etc. Higher gross margins for a manufacturer reflect greater efficiency in turning raw materials into income. For a retailer it will be their markup over wholesale. Larger gross margins are generally considered ideal for most companies. Based on the results, regardless of influx, the gross margin seems rather stable and at medium efficiency levels.

Gross Margin = Gross Profit / Sales

2009: 8,604,000/19,176,000 = 44.87%

2010: 8,800,000/19,014,000 = 46.28%

2011: 9,508,000/20,862,000 = 45.58%

2012: 10,471,000/24,128,000 = 43.40%

2013: 11,034,000/25,313,000 = 43.59%

This ratio is an indicator of profitability and is often used to compare the profitability of companies and industries of differing sizes. Significantly, ROS does not account for the capital (investment) used to generate the profit. For this ratio, high number are preferred. The key to a successful Operating Profit Margin is having a low operating income, which Nike seems to be doing fairly well in.

Operating Profit Margin = Operating Income/Sales

2009: 1,859,000/ 19,176,000= 10.15%

2010: 2,474,000/19,014,000= 13.27%

2011: 2,815,000/20,862,000= 13.65

2012: 3,040,000/24,128,000= 12.38

2013: 3,254,000/25,313,000= 12.91

This ratio is calculated with selling price (or revenue) taken as base times 100. The profit margin is mostly used for internal comparison. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin. Profit margin is an indicator of a company's pricing strategies and how well it controls costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies. Nike’s profit margin is fairly decent. It decreases in 2012, but as said before, Nike may just have had a poor pricing strategy.

Profit Margin = (Net Income/Sales) x 100

2009: 1,487,000/19,176,000= 7.75%

2010: 1,907,000/19,014,000= 10.03%

2011: 2,133,000/20,862,000= 10.22%

2012: 2,223,000/24,128,000= 9.21%

2013: 2,485,000/25,313,000= 9.82%

Financial Leverage Ratios

This ratio is a way to determine a company's leverage. The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought to be more risky because they have more liabilities and less equity. Seeing as how Nike’s results are all below 1.0, it would be safe to say that Nike is in no way risky, and that Nike has more equity than liabilities.

Long-Term Debt Ratio = Long-Term Debt/ (Long-Term Debt + total Equity)

2009: 437,000/ (437,000+8,693,000) = .05

2010: 446,000/ (446,000+9,754,000) = .04

2011: 276,000/ (276,000+9,843,000) = .03

2012: 228,000/ (228,000+10,381,000) = .02

2013: 1,210,000/ (1,210,000+11,156,000) = .09

The ratio serves as a measurement of the company's ability to honor its debt payments. Times Interest Earned or Interest Coverage is a great tool when measuring a company's ability to meet its debt obligations. When the interest coverage ratio is smaller than 1, the company is not generating enough cash from its operations EBIT to meet its interest obligations. The Company would then have to either use cash on hand to make up the difference or borrow funds. Seeing as how there was no interest expense for certain years, one could assume that Nike did not take out any loans, which really says something about its financial health.

Times Interest Earned/Interest Coverage = Operating Income/Interest Expense

2009: 1,859,000/ (n/a) = (n/a)

2010: 2,474,000/ (n/a) = (n/a)

2011: 2,815,000/ 4,000 = 712

2012: 3,040,000/ (n/a) = (n/a)

2013: 3,254,000/ (n/a) = (n/a)

Beta Coefficient

The systematic risk principle states that the reward for bearing risk depends only on the systematic risk of an investment. A beta above one generally means both that the asset is volatile and tends to move up and down with the market. Beta is important because it measures the risk of an investment that cannot be diversified away. It does not measure the risk of an investment held on a stand-alone basis, but the amount of risk the investment adds to an already-diversified portfolio. In the Capital Asset Pricing Model, beta risk is the only kind of risk for which investors should receive an expected return higher than the risk-free rate of interest. The beta computation for Nike is 0.67. Seeing as how this decimal is less than one, Nike would not be a super risky investment.

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Bibliography

http://en.wikipedia.org/wiki/Nike,_Inc

http://nikeinc.com/pages/contact-nike-inc

http://finance.yahoo.com/q/ks?s=NKE+Key+Statistics

http://www.hoovers.com/company-information/cs/revenue-financial.Nike_Inc.095b58e0d70133d6.html

http://www.mergentintellect.com.proxy.ncwc.edu/index.php/search/companyDetails/50957364/reports

http://library.morningstar.com.proxy.ncwc.edu/Stock/financials/income-statement?t=ADDDF&region=USA&culture=en-US

Appendix A