NikeA Financial Evaluation

June 30, 2016

Cara Clifford, Tony Goodman

Tyler Hough, Andrew LaLonde

Company Profile

Nike began as Blue Ribbon Sports

in 1967.

Primarily designs, develops,

markets and sells athletic

footwear, apparel, equipment and

services.

Nike’s brand includes:

- Jordan Brand

- Hurley

- Converse

Using information from 2015 financial reports.

Global Impact

Largest seller of athletic sportswear in the world.

Online sales presence via Nike.com and Converse.com

US STORES

339INT’l STORES

592

Using information from 2015 financial reports.

Key Competitors

Key Financial Ratios

A Look Into How Nike’s Uses Capital

MVA (2015)

71.3BEVA (2015)

2.28B

Return on Invested Capital

2013 2014 2015

17.6% 19.1% 21.3%

Using information from 2015 financial reports.

Key Financial Ratios (cont’d)

Nike Under Armour Lululemon

Revenue Growth 10.1% 28.5% 14.7%

Debt to Capital Ratio (total) 9.0% 28.6% 0%

Return on Equity 26% 13.9% 25.9%

Return on Assets 15.2% 8.1% 20.2%

Using information from 2015 financial reports.

Key Financial Ratios (cont’d)Efficiency Ratios

Nike Under Armour Lululemon

Days of Inventory Outstanding 96 days 139 days 99 days

DSO 40 days 40 days 2.3 days

DPO 47 days 35 days 3.6 days

Cash Conversion Cycle 89 days 144 days 97.3 days

Using information from 2015 financial reports.

Projections

INCOME STATEMENT*

Revenues 33,279

Cost of Sales 17,981

Total Selling and Admin Expense 10,758

EBIT 4,540

Interest Expense (net) 30

Taxes 1,001

Net Income 3,509

*In millions.

Projections

*In millions.

ASSETS

Cash 3,852

Short-term Investments 2,072

Receivables 3,651

Inventory 4,716

Prepaid Expenses and Other Current Assets 2,140

Current Assets 16,431

Property 3,368

Identifiable Intangible Assets 280

Deferred Income Taxes and Other Assets 2,201

Total Assets 22,280

LIABILITIES & EQUITY

Notes Payable 325

Accounts Payable 2,317

Accrued Expenses 4,296

Long Term Debt-Current 142

Current Liabilities 7,080

Long Term Debt 937

Deferred Income Taxes and Other Liabilities 1,480

Total Liabilities 2,417

Common Stock 6,773

Retained Earnings 6,010

Owner's Equity 12,783

Total Liabilities & Equity 22,280

Projections

EFN = Change in Notes Payable = $251 M

ROIC for projections = NOPAT/Invested Capital = 22.5%

FinancingSources of Funds

Using information from 2015 financial reports.

2012 2013 2014 2015

Cash, cash equivalents, short-term investments X X X

Asset from discontinued operations X

Non-interest bearing liabilities X X

Long-term debt X

Equity X X X X

Capital Structure & CostsBeta Comparison

Market Rate 1

Nike 0.9

Under Armour 1.2

Lululemon 1.1

Using information from 2015 financial reports.

Capital Structure & CostsEquity Valuation

CAPM

Cost of Equity

Nike 6.9%

Under Armour 8.7%

Lululemon 8.1%

Using information from 2015 financial reports and cost of equity calculations are approximate.

Capital Structure & CostsCapital Structure

Weighted Average Cost of Capital Calculation

WACC 6.5%

Risk-free rate 1.47%

Default Premium 0.78%

Cost of Equity 6.9%

Using information from 2015 financial reports. Risk-free rate is based on US 10-year treasury bonds

and Nike default premium is based on 2.25% rate for 10-year Nike bonds.

2013 2014 2015

Debt 11.1% 11.3% 9%

Equity 88.9% 88.7% 91%

Dividend PolicyOverview

Nike’s dividends have increased each year for the past 14

years. In contrast, Under Armour and Lululemon have not

paid dividends.

Dividend PolicyDividend Trends

Using information from 2015 financial reports and *stock repurchases as of 9/2012.

Dividend PolicyPayout Ratios and Repurchases

Using information from 2015 financial reports and *stock repurchases as of 9/2012.

2011 2012 2013 2014 2015 Total

Ratio 26.0% 27.8% 28.4% 29.7% 27.0%

Dividends Paid 555M 619M 703M 799M 899M 3.575B

Stock

Repurchases*1859M 1814M 1674M 2628M 2534M 10.509B

Dividend PolicyRepurchases & Dividends Compared

NIKE pays at regular intervals to its shareholders out of its after tax profits.

Shareholders pay taxes on distributed dividends

NIKE repurchased its shares from the marketplace, reducing the number of

share outstanding and increasing its EPS and ROE, which are measures of

profitability.

The goal is to increase the share price over time.

Shareholders will receive a return and taxation today plus an uncertain

return and tax sometime in the future.

We can conclude that Nike values shareholder returns.

Stock ValueComparison Before & After Stock Split

Before After

$77.6B $77.6B

857M 1.7B

$90.60 $45.67

$101.67* $53.09^

Value of Equity

Number of Shares

Value Per Share

Closing Price

Using information from 2015 financial reports. *As of 5/31/15. ^As of 6/28/16.

Valuation Comparison

Value Line Analyst

“This neutrally ranked stock is expensive. Long term investors should wait for

shares to pull back before committing their capital.”

Fidelity

“Nike suffers multiple target cuts, but analysts remain bullish.”

Citigroup

“Rates Nike a buy, but lowered its target price from $61 to $75.”

Jeffries

Although there has been a slowdown in the basketball business, “the strength of

the new KD and Kyrie shoes and going health of Jordan, ‘gives’ us more

confidence in the category.”

Looking ForwardChallenges

Inventories

Inventories have risen. consumers are not spending as much on apparel

and stores that sell Nike merchandise faltering, i.e., Sports Authority’s

bankruptcy and Macy’s struggle with driving traffic to its stores.

Competition

Women’s Leisure is getting more crowded. LULU

Curry (UA) beating LeBron (NKE) off the court in shoe war.

Looking ForwardOpportunities

Brand Recognition

Recommendations from Morningstar, Inc

Endorsements & Winning Athletes

SourcesNike Annual Reports 2011-2015; 2016 Quarter 4 Financial Statements

Nike Websitehttp://investors.nike.com/investors/news-events-and-reports/investor-news/investor-news-details/2015/NIKE-Inc-Announces-New-12-

Billion-Share-Repurchase-Program-14-Percent-Increase-in-Quarterly-Dividend-and-Two-for-One-Stock-Split/default.aspx

Fidelity

Valueline

Morningstar

Yahoo Finance

Sources (cont’d)Business Insiderhttp://www.businessinsider.com/nike-shares-fall-on-earnings

New York Timeshttp://www.nytimes.com/2016/06/18/sports/basketball/under-armour-shoes-nike-stephen-curry-lebron-james.html

Wall Street Journalhttp://www.wsj.com/articles/nikes-run-facing-an-uphill-climb-1466809364

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