Company Analysis of Nike 2014 Essay

asylum/ COMPANY BACKGROUNDThis report examines NIKE Inc. one and only(a) of the leading sports mark off in the world. It uses caper abbreviation techniques such as SWOT, PESTEL, doorkeepers basketball team forces, and Ratio analytic thinking to analyse the business purlieu and performance of this smart set. NIKE Inc. is one of the worlds biggest sporting brand base in operating theater USA. Founded in 1968, NIKE is the worlds biggest flesher tradeer and seller of gymnastic footwear, sports equipment, apparel, accessories and services, by sales tax income of $21.5 billion in 2012 (NIKE, 2013). With 48000 employees, NIKEs action cuts across different regions in the world including Canada, Asia, Latin America, Europe, and Africa. They posted receipts of $25313 million in the 2013 financial year end point May 2013, the ac friendship has enjoy harvest-feast in its revenue since 2010, and this trend is expected to expand as they leverage on top sporting events to boo st their brand image (Tefris 2013). PESTEL ANALYSISPESTEL (Political, Economic, genial, Technological Environment, and lawful) abridgment is a business analysis technique that is employ to analyse the growth voltage of a fede dimensionn. It helps firms divulge the environment in which they contain, and chamberpot firms predict future circumstances and situations by using information and data it provides (Yksel, 2012). This report provides a PESTEL analysis of NIKE in the ascertaining paragraphs. PoliticalPolitical environment pay a big conditional relation on the micro and macro environment of a business, and they elicit signifi good dealtly influence a range of business decisions (Leslie and Phillip, 2012). Political environment includes political system, g everyplacenment policies and other trade related regulations. Some of the political factors that brush off come upon NIKE includes the relationship in the midst of USA (Nikes resign of matter of origin) and ot her host countries where NIKE operates (for moral China). For example change magnitude tension between US and China depose lead to certain aggressive policies that provoke affectthe keep comp anys ope balancens in China. Further much late pressure on US firms to keep jobs in the US can affect plans for future pulverization locations of NIKE. EconomicalThe economic environment of the countries NIKE operate in is very vital to the overall strategy and decisions of the political party. These factors include the state of the international economy, economic incentives from the countries where NIKE factories are cited, the general economic condition of these countries, pomposity rates and changing oil prices. All of these factors can affect the revenue of the participation, increased economic growth in emerge markets such as Brazil and China presented a capacious revenue opportunity for the alliance, in time recent decline in the growth of the Chinese economy leave behind also nominate minutely negative impact of revenue projections of NIKE. SocialSocial factors can influence the business decisions of NIKE one way or the other. These factors includes tradition, customs, beliefs, aim of education, corruption, customers consciousness, changing lifestyle, and income distribution (Singla, 2007). For example increased consciousness to concur healthy living bequeath lead to to a greater extent demand for fitness centres and gyms that in turn could lead to more sales revenues for NIKE. Furthermore clamour for increased better welfare for workers in vesture factories in countries the likes of China, Indonesia, and Bangladesh, and pressure from the civil society groups like actors Right Consortium on companies like NIKE to checker their suppliers fol scurvy health and safety standards are among some of the social situations and issues the union have to contend with. TechnologicalThe commercial success of NIKEs product is based on technical innovatio n and woodland control in the program and manufacturing process of footwear, athletic equipment, and apparel (Nike, 2014). For this reason changes in technological factors can have serious impact on the overall operations of the play along. For example new engine room can lead to new products, modify the manufacturing process, and improve the distribution network. This implies that the revenue of NIKE can increased, or in that location could be drop-off in the embody of manufacturing repayable to better technology. To celebrate competitory improvement the play along need to evermore on a lower floorstand the technological factors that affect them. environmental note operations of firms such as NIKE can have huge impact on the environment. Factors such as climate change, waste management, water system management, and use of hazardous chemicals are all environmental impact areas the company has identified. NIKE highlights its commitment to reducing the impact of the comp anys operations by dint of understanding how related these factors are, and how a coordinated approach in the design of its product and processes can mitigate the impact on the environment, and on their business. LegalThe judicial system, consumer rights, trade treaties, and ethical codes are all sub judice factors that affect NIKE. Constant understanding of laws and regulations is imperative to avoid serious legal implication for the company. Gotham (2013) highlights that one serious legal related issue NIKE needs to constantly deal with is the issue of counterfeit product. Ensuring that fake NIKE products are non tolerant spread is necessary to keep the NIKE reputation, and avoid lawsuits that can increase the legal cost of the company. Furthermore, keeping ethical standards is very vital in defend the NIKE brand. SWOT ANALYSISSWOT is a management tool that is used to build strategic business plans (Amin et al, 2011). It is widely used in business due to its simplicity of its four factors (Strength, Weakness, Opportunity and Threats) and its flexibility (Al-Araki, 2013). The SWOT analysis of NIKE is presented in the next few paragraphs below. StrengthOne main military strength of NIKE is its dominant station in the market, and the cockeyed brand portfolio of the company. According to Forbes (2014a) NIKEs market division in the global footwear market foundered 18.6% in 2012, and it is expected to rise to 27% in the long run. The main reference work of value for NIKE are footwear and apparel that are sold under the NIKE brand, together they make approximately 70% of the overall value of NIKE (Trefis, 2014). This competitive brand portfolio of NIKE and the dominant position of the companyare key strengths that en satisfactorys the company outperform the assiduity. WeaknessWatts (2009) asserts that one of NIKEs weakness is their in efficacy to send problems linked to their labour and factory conditions. The company has been consistently criticised f or its lack of control, and colony on contractors and manufacturers that do not meet labour standard, safe factory conditions in Pakistan, Bangladesh, Indonesia, and China. This has caused to bad publicity for the company, and increased calls for product boycott in recent eld. Furthermore the companys focus on quality could be a potential weakness as it explore emerging market like Brazil, because its price points will be higher and some customers in these markets could lack the level of income to purchase their products. OpportunitiesIncreased growth in emerging economies presents a huge expansion opportunity for NIKE. The companys management believes there is high potential for their products in markets such as China, Brazil, and other emerging countries (Trefis, 2011). The growth these economies enjoy expands the global footwear market, and NIKE is in a untouchable position to tap into this growth opportunity. Furthermore the change magnitude use of multi-channel platforms su ch as online and mobile for shopping is an opportunity for NIKE to reach out to more customers worldwide. ThreatThe companys main holy terror is its increasing contest, the intense contest and unpredicted changes in in technology and consumer preference in the industry NIKE operates presents a huge take a chance that can threaten the operations of the company (NIKE, 2013). Some of the main competitors that remain a threat to the company includes Adidas, Puma, and Under Amour. Furthermore, the strong brand value of NIKE products increases the risk of counterfeiting of their products. This is a constant threat the company needs to tackle to ensure it doesnt discharge brand value and revenues. PORTERS pentad FORCES ANALYSISPorters quin forces analysis helps firms to understand the arguing and favourableness in an industry, the framework includes potential entrants, industrial competitors, suppliers, buyers and substitutes. According toPorter (2008) understanding the competitive forces, and their fundamental causes enables companies see the root of underway simoleonsability of an industry, while it provides framework that helps anticipate and influence competition over a blockage of time. The following paragraphs give analysis of the how these five forces influence the competition of NIKE. Potential EntrantsPotential new entrants into the market can cause NIKE to lose market share, however in the current situation the risk of potential new entrant to NIKE is minimal because of the high entry barrier because of the open up nature of the global sportswear industry. While the risk of new entrants is low, it should be noted that there is a risk of new entrant into NIKEs existing product line, this can lead to loss of sales and revenue. The company needs to channel its energy into continuously expanding its market share by means of improving on existing products, and introducing innovative products that will enable them maintain their competitive advantage . Level of competitionThe level of competition in the global sport footwear and clothing industry is very high. NIKE faces stiff competition from other brands like Adidas and Puma. According to Forbes (2014b) the company faces tough competition in emerging markets and Western Europe, as rival brands like adidas increases their competitive take the field through lunch of products and other related activities aimed at gaining back anomic market share. Furthermore, NIKE also faces competition from local brands like Li Ning as they expand to emerging markets like China. The company need to work very hard to continue to protect and expand its brand, for them to be able to maintain the dominant level they are presently. Bargaining Power of SuppliersSuppliers often narrow the success of companies selling a product (Bode et al, 2011). However, the availability of commodity items like rubber, and cotton NIKE uses for the production of its goods, and the high amount of suppliers in the ind ustry gives the company absolute advantage over its suppliers. NIKE can choose to switch to any supplier at any time with less cost implication, and low risk of disruption to it supplies due of its brandreputation. Furthermore, every supplier will want to do business with NIKE because of the huge manufacturing ability of the firm. This gives NIKE power over its suppliers, and guarantee of steady supplies. Bargaining Power of customersThe loyalty of customers to NIKE brand gives the company bargaining power over its customers. NIKE can decide to set its prices at high levels because it knows customers are willing to pay to be identified with its brand. As long as the company continues offer products that are innovative and benevolent to its customers, the company will continue to maintain it strong position, and attract more customer loyalty (Lussier and Kimball, 2014). The bargaining power the company has over its customers gives them a great deal of flexibility in their pricing. T hreat of SubstitutesThere is a high tendency for customers to substitute NIKE products for other brands when they face squeeze in their income during economic downturn. This is due to the fact that NIKE product are considered pricey can could be considered luxury product among certain middle class families if there is a squeeze on their disposable income. Competitors can capitalise on this to release cheaper products that will be appealing to these customer during economic slowdown, indeed NIKE need to constantly monitor the overall economic wellbeing of its customers out front introducing any product. ANALYSIS OF NIKE FINANCAL RATIO*Extracted dataRatiosFormula201320122011Asset perturbation Ratio receipts/ ingrained Assets1.441.511.39Return on Assets(ROA)Net Income/ correspond Assets14.13%14.37%14.22%Return on Equity(hard roe)Net Income/Equity22.28%21.41%21.67%Gross Profit border(Revenue-COGS)/Revenue43.59%43.50%45.58%Quick Ratio(CA Inv.) / CL2.602.222.19Current RatioCA/CL3.473 .052.85Debt RatioTotal Debt/Total Asset7.89%2.49%4.42%Debt to EquityTotal Debt/Total Equity12.44%3.71%6.74%Inventory TurnoverCOGS/ Inventory4.164.094.35Receivables TurnoverRevenue/Receivables8.127.456.65*P/E Ratio22.9022.4018.90*EPS2.712.372.20Nikes revenue increase by approximately 8% in 2013 from 2012 figures, looking at the profitability ratios in the table supra, it can be discover that the companys profit margin reduced from 45.89% to 43.50% in 2012 and slightly increased later in 2013 to 43.59%. The gross profit margin is a reflection what is left aft(prenominal) the cost of production is deducted, other profitability ratios such as ROE also shows up trend from 2011 to 2013 indicating a favourable year for the company compared to its 2012 figures. This according Forbes (2014a), and NIKE was as a result of pricing actions, and reduce cost of material such as cotton, and lower investment activities by the company in 2013. The asset turnover of the company reduced in 2013 comp ared to 2012, this could be attributed to the fall in sales in China one of the biggest market for the company. Furthermore, looking at the liquidity ratio of the company, it can be discovered that its current and quick ratiohave been increasing indoors the full stop under review. For 2013 quick ratio was 2.60times an increase from 2.22times in 2011, this is well supra the industry average which is currently at 0.77times.The current ratio of the company has also been increasing in the years under review, this reflects a strong financial position for the firm because it indicates that the company will be able to meet up future debt obligations. Other solvency ratios such as debt ratio and debt to equity ratio saw a high increase from 2.49% and 3.71% in 2012 to 7.89% and 12.44% respectively. This is an indication that the company relies on debt to fund its assets, this can be due to the strong liquidity position of the company which is reflected in its quick and current ratios. The company has the ability to meets its debt obligations so the risk of using debt of using debt is low. in the long run from the efficiency ratios it can be observed that the inventory turnover for the company reduced from 4.35times to 4.09times in 2012, and later rose slightly to 4.16times in 2013. This indicates that the company is still slow in the number of times its inventories is sold and replaced compared to the 2011 figure.This could be as a result of the slow recovery of most countries approach shot out of recession, and slow growth in key markets for NIKE. However this is not a problem peculiar to NIKE, and the company is still above the industry average of 3.6times. The receivable turnover of the company has been increasing within 2011 and 2013, it is possible that this also adds to the increasing liquidity position of the company. The EPS of the company has observed an upward trend from $2.20 in 2011 to $2.71 in 2013, also its P/E ratio also increased 18.90% to 22.90% this is an indication of NIKEs profitability within these years and it reflects NIKEs strong position among the investing community. The increasing P/E ratio of NIKE also indicates investors confidence in NIKEs future salary and the growth prospect of the company. In conclusion, from the analysis of NIKE financials it is evident that the company maintains a strong position in the industry, because of its increasing revenue despite slight drop in certain emerging market, its liquidity position is strong compared to industry average and their growth prospect is also high as reflected in their growth ratios. ANALYSIS OF SHARE PERFORMANCEFigure bm of Nike share price in the past 6 months.The figure above presents the share performance of NIKE for the past 6 months, from the figure it could be observed that in the third quarter of NIKEs financial 2013 year ending May 2014, the share price of the company observed a laconic drop to $70.51, then rose to $79.64 reaching its peak in the p eriod under review. The share price dropped to $73.2 and since then have been fluctuating within 70 and $71. According to NIKE (2013) fluctuations in NIKE share prices can be attributed to diverse factors that affects performance in these quarter, they include the seasonality of its products, general economic condition, weather condition, and changes in consumer preference. However, dividend pay-out announcements, expectations of quarterly results and other industry related factors could also lead to the fluctuations of NIKE share price. Overall NIKEs share performance has been fairly stable at $70-$80 as no highly significant drop have been observed in the period under review. CONCLUSIONIn conclusion, the analysis of NIKE indicates that it remains one of the biggest sports manufacturing brands in the world. The companys focus on manufacturing innovative products has kept them in a very strong position in the sportswear and clothing industry. Though the global economic growth has s lowed down slightly, and this has also affected key emerging markets such as China, growth projections for NIKE remain strong as investors believe the company has the ability to fight off intense competition and continue to expand its potential in the market. 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