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SEC 10-K annual report for Nike Inc - Essay Example

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SEC 10-K annual report for Nike Inc

The company adopted its “Swoosh” logo in 1971. Dramatic growth of the company started with the signing of Michael Jordan and the launch of the Air Jordan brand in 1985. The company revenues have grown at 8.2% CAGR in the last 10 years while the profits have grown at 23.1% CAGR (Gibbs, 2012). Athletic footwear made up 64% of Nike’s products business in 2012 and sports apparel 30%. Branded equipment made up the remaining 6%. The global footwear industry is projected to grow from $ 185 billion in 2011 to $ 211 billion in 2018. Athletic footwear is expected to be about one-third of this market (PR Web, 2012). The sports apparel market is expected to grow in the same period from $ 122 billion to $ 190 billion (TREFIS, 2010). Nike’s market share in both markets is expected to grow over the next five years as shown in the charts below which should make Nike an even stronger market leader in its industry (Guenette, 2013). 2. Analysis of Nike Financial Reports The three key financial reports to be examined are the Income Statement, the Balance Sheet and the Cash Flow statement. A summary of these three statements made from the company’s 10-K filing for the fiscal year ended 31 May 2012 has been included in this report. 2.1 Analysis of the Income Statement A summary of the Income Statement is shown below (Nike Annual Report, 2012, p 41). Income Statement ( in $ million)   2012 2011 2010 Revenues 24,128 20,862 19,014 Cost of Sales 13,657 11,354 10,214 Gross Profit 10,471 9,508 8,800 Gross Margin % 43.4% 45.6% 46.3% Marketing Expense 2,711 2,448 2,356 Other overheads 4,720 4,245 3,970 Total SG & A 7,431 6,693 6,326 SGA / Revenue % 30.8% 32.1% 33.3% Interest expense 3 4 6 Other expenses/ (income) 54 (33) (49) Income before Tax 2,983 2,844 2,517 Tax expense 760 711 610 Net Income 2,223 2,133 1,907 Net Income / Revenue % 9.2% 10.2% 10.0% The company revenues have grown 16% in 2012 over 2011 which were 10% higher than the previous year (Nike Annual Report, 2012, pp 18-20). This growth shows that Nike is gaining market share as the total markets are only growing at around 2% a year. Nike’s main competitor Adidas had revenues of € 11.88 million ($ 15.6 billion) in 2012, a growth of 11.7% over 2011 (Adidas Annual Report, 2012, p 190). The Gross Margin has decreased by about 300 basis points over the two years to 43.4% and this has been attributed by the company management to increases in input costs, higher import taxes in some countries and discounts on close-out sales (Nike Annual Report, 2012, p 21). Adidas has had significantly higher gross margins at 47.7% in 2012 and 47.5% in 2011 (Adidas Annual Report, 2012, p 190). The decline in gross margin for Nike has been offset by reduced SG&A costs and the net income in 2012 has only declined 80 basis points compared to 2010. For Adidas the SG&A costs are much higher than Nike at 41.3% in 2012 and 41.8% in 2011 resulting in a net income of 5.3 % in 2012 9 (excluding € 265 million Goodwill write-off) compared to 4.6 % in 2011. 2.2 Analysis of the Balance Sheet The Nike balance sheet as of 31 May is given only for two years 2011 and 2012 in their Annual Report and is summarized below. a) Return on Capital Employed (ROCE) The Capital Employed in Nike’s operations is the total of the non-current assets in the balance sheet and the working capital made up of inventories and accounts receivables less ...Show more


Report on Nike Inc. Table of Contents   Page 1. Nike Company Information 3 2. Analysis of Nike Financial Reports 4 2.1 Analysis of the Income Statement 4 2.2 Analysis of the Balance Sheet 5 a) Return on Capital Employed 5 b) Low usage of debt funds 7 c) Working Capital Management 7 2.3 Analysis of the Cash Flow Statement 8 3…
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