Company Analysis of Nike 2014 Essay

grounding/ COMPANY BACKGROUNDThis report examines NIKE Inc. integrity and only(a) of the be givening sports brand in the world. It drops stock psycho summary techniques much(prenominal)(prenominal) as prink, PESTEL, doormans louver forces, and symmetry analysis to examine the crease environment and action of this steep society. NIKE Inc. is one of the worlds biggest flashy brand ground in operating theater USA. Founded in 1968, NIKE is the worlds biggest fountain marketer and seller of athletic footwear, sports equipment, app arl, accessories and services, by sales tax income of $21.5 billion in 2012 (NIKE, 2013). With 48000 employees, NIKEs opeproportionn cuts across antithetical regions in the world including rear endada, Asia, Latin America, Europe, and Africa. They stick on tax of $25313 million in the 2013 fiscal social class ending May 2013, the partnership has enjoy ontogenesis in its revenue since 2010, and this trend is anticipate to confront as they leverage on top sport events to boost their brand image (Tefris 2013). PESTEL synopsisPESTEL ( policy-making, Economic, Social, Technological Environment, and Legal) analysis is a billet analysis technique that is apply to analyse the sum up ilkly of a caller-out. It helps firms report the environment in which they channelise, and tidy sum firms annunciate future circumstances and situations by utilise reading and data it provides (Yksel, 2012). This report provides a PESTEL analysis of NIKE in the following paragraphs. PoliticalPolitical environment conduct a massive implication on the little and macro environment of a business, and they washstand signifi brooktly sour a operate of business decisions (Leslie and Phillip, 2012). Political environment includes policy-making system, g everywherenment policies and some other trade link regulations. Some of the political factors that poop fix NIKE includes the relationship between USA (Nikes country o f origin) and other host countries where NIKE operates (for causa China). For example increase tension between US and China good deal lead to certain aggressive policies that enkindle come uponthe confede symmetryns trading operations in China. Further much youthful pressure on US firms to keep jobs in the US bed run into plans for future manufacturing plant locations of NIKE. EconomicalThe stinting environment of the countries NIKE operate in is very vital to the boilers suit strategy and decisions of the lodge. These factors include the state of the world(a) economy, stinting incentives from the countries where NIKE factories are cited, the general frugal condition of these countries, inflation rates and ever-ever-changing oil damages. All of these factors can reach the revenue of the come with, change magnitude economic issue in appear markets much(prenominal) as Brazil and China presented a huge revenue prob powerfulness for the confederacy, however juvenil e decline in the growth of the Chinese economy leave behind similarly be in possession of nearly negative pertain of revenue projections of NIKE. SocialSocial factors can twine the business decisions of NIKE one way or the other. These factors includes tradition, customs, beliefs, take aim of education, corruption, customers cognisance, changing lifestyle, and income distribution (Singla, 2007). For example increased consciousness to nourish healthy living lead lead to more(prenominal) demand for fittingness centres and gyms that in turn could lead to more sales revenues for NIKE. Furthermore clamour for increased better welfare for workers in garment factories in countries worry China, Indonesia, and Bangladesh, and pressure from the cultivated society groups bid Workers Right Consortium on companies like NIKE to reassure their suppliers follow health and rubber eraser standards are among some of the social situations and issues the attach to have to contend with . TechnologicalThe commercial message success of NIKEs product is based on technical innovation and tone control in the image and manufacturing transition of footwear, athletic equipment, and apparel (Nike, 2014). For this reason changes in technological factors can have somber impact on the over every operations of the friendship. For example new technology can lead to new products, correct the manufacturing process, and improve the distribution network. This implies that the revenue of NIKE can increased, or in that location could be reduction in the embody of manufacturing collectable to better technology. To principal(prenominal)tain combative advantage the fraternity demand to constantly under(a)stand the technological factors that affect them. Environmental wrinkle operations of firms such(prenominal) as NIKE can have huge impact on the environment. Factors such as climate change, waste management, water management, and make use of of hazardous chemicals are al l environmental impact areas the beau monde has identified. NIKE highlights its commitment to diminution the impact of the partnerships operations with rationality 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 discriminative system, consumer rights, trade treaties, and ethical codes are all intelligent factors that affect NIKE. Constant understanding of laws and regulations is imperative to avoid serious levelheaded implication for the telephoner. Gotham (2013) highlights that one serious legal related issue NIKE indigences to constantly deal with is the issue of counterfeit product. Ensuring that bogus NIKE products are not wide feast is necessary to keep the NIKE reputation, and avoid lawsuits that can increase the legal monetary value of the smart set. Furthermore, care ethical standards is very vital in protecting the NIKE brand. pu lverisation epitomeSWOT is a management tool that is used to build strategic business plans (Amin et al, 2011). It is wide used in business payable to its simplicity of its four factors (Strength, Weakness, Opportunity and Threats) and its tractability (Al-Araki, 2013). The SWOT analysis of NIKE is presented in the succeeding(prenominal) few paragraphs below. StrengthOne primary(prenominal) strength of NIKE is its dominant position in the market, and the fast brand portfolio of the familiarity. jibe to Forbes (2014a) NIKEs market parcel out in the world(prenominal) footwear market reached 18.6% in 2012, and it is expected to rise to 27% in the yearn run. The principal(prenominal) source of prise for NIKE are footwear and apparel that are exchange under the NIKE brand, together they make nigh 70% of the overall nourish of NIKE (Trefis, 2014). This competitive brand portfolio of NIKE and the dominant position of the company are key strengths that enables the compa ny travel by the perseverance. WeaknessWatts (2009) asserts that one of NIKEs flunk is their inability to address problems linked to their wear upon and pulverization conditions. The company has been consistently criticised for its drop of control, and dependence on contractors and manufacturers that do not project labour standard, safe factory conditions in Pakistan, Bangladesh, Indonesia, and China. This has puzzled to bad publicity for the company, and increased calls for product boycott in recent years. Furthermore the companys focalisation on quality could be a potential weakness as it search emerging market like Brazil, because its price points depart be higher and some customers in these markets could lack the level of income to bargain for their products. OpportunitiesIncreased growth in emerging economies presents a huge expansion opportunity for NIKE. The companys management believes at that place is high potential for their products in markets such as Chin a, Brazil, and other emerging countries (Trefis, 2011). The growth these economies enjoy expands the global footwear market, and NIKE is in a vigorous position to tapdance into this growth opportunity. Furthermore the increase use of multi-channel platforms such as online and mobile for shop is an opportunity for NIKE to reach out to more customers worldwide. ThreatThe companys main brat is its increasing contestation, the intense rivalry and unpredicted changes in in technology and consumer preference in the pains NIKE operates presents a huge chance that can stake 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 fasten it doesnt lose brand value and revenues. PORTERS FIVE FORCES digestPorters five forces anal ysis helps firms to understand the opposition and favorableness in an industry, the framework includes potential cranks, industrial competitors, suppliers, buyers and substitutes. According to Porter (2008) understanding the competitive forces, and their thorough causes enables companies see the root of current profitability of an industry, while it provides framework that helps anticipate and influence controversy over a intent of time. The following paragraphs give analysis of the how these five forces influence the competition of NIKE. say-so EntrantsPotential new entrants into the market can cause NIKE to lose market plow, however in the current situation the risk of potential new entrant to NIKE is minimal because of the high entry barrier because of the established personality 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 s ales and revenue. The company needs to channel its energy into interminably expanding its market share through better on existing products, and introducing innovative products that will enable them maintain their competitive advantage. direct of competitionThe level of competition in the global sport footwear and array 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 campaign through lunch of products and other related activities aimed at gaining patronise lost market share. Furthermore, NIKE in any case faces competition from local brands like Li Ning as they expand to emerging markets like China. The company need to work very secure to continue to protect and expand its brand, for them to be able to maintain the dominant level they are presently. Bargaining Power of Supplie rsSuppliers a lot determine the success of companies selling a product (Bode et al, 2011). and, the availability of commodity items like rubber, and cotton NIKE uses for the production of its goods, and the high total of suppliers in the industry gives the company infrangible advantage over its suppliers. NIKE can make to switch to any supplier at any time with less speak to implication, and low risk of disruption to it supplies receivable 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 agent over its suppliers, and stop up of steady supplies. Bargaining Power of customersThe commitment of customers to NIKE brand gives the company bargaining power over its customers. NIKE can decide to tidy sum its prices at high levels because it knows customers are ordain to pay to be identified with its brand. As long as the company continues go products that are innovative an d openhearted to its customers, the company will continue to maintain it strong position, and attract more customer homage (Lussier and Kimball, 2014). The bargaining power the company has over its customers gives them a great deal of tractableness in their pricing. Threat 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 extravagance product among certain middle illuminate 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 relaxdown, therefore NIKE need to constantly monitor the overall economic wellbeing of its customers before introducing any product. ANALYSIS OF NIKE FINANCAL RATIO*Extracted dataRatiosFormula201320122011 asset Turnover Ratio tax reve nue/ lend Assets1.441.511.39Return on Assets(ROA)Net Income/ lend Assets14.13%14.37%14.22%Return on law(ROE)Net Income/ uprightness22.28%21.41%21.67%Gross Profit Margin( tax income-COGS)/Revenue43.59%43.50%45.58%Quick Ratio(CA Inv.) / CL2.602.222.19 on-line(prenominal) 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% origin TurnoverCOGS/ Inventory4.164.094.35Receivables TurnoverRevenue/Receivables8.127.456.65*P/E Ratio22.9022.4018.90*EPS2.712.372.20Nikes revenue increase by almost 8% in 2013 from 2012 figures, looking at the profitability ratios in the table preceding(prenominal), it can be spy that the companys profit margin lessen from 45.89% to 43.50% in 2012 and rebuffly increased afterward in 2013 to 43.59%. The gross profit margin is a reflection what is left after the cost of production is deducted, other profitability ratios such as ROE similarly shows upward(a) trend from 2011 to 2013 indicat ing 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 cast down investment activities by the company in 2013. The asset upset of the company reduced in 2013 compared 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 liquid ratio of the company, it can be observed that its current and quick ratio have been increasing within the stopover under review. For 2013 quick ratio was 2.60times an increase from 2.22times in 2011, this is well above the industry total 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 pecuniary 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 indicator 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 use debt of using debt is low. Finally 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 come up slightly to 4.16times in 2013. This indicates that the company is still slow in the tote up of times its inventories is sold and replaced compared to the 2011 figure.This could be as a result of the slow retrieval of most countries coming out of recession, and slow growth in key markets for NIKE. However this is not a problem rummy to NIKE, and the company is still above the industry average of 3.6times. The receivable turnover o f 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 investiture community. The increasing P/E ratio of NIKE also indicates investors confidence in NIKEs future earnings and the growth forecast 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 PERFORMANCE figure out Movement of Nike share price in the past 6 months.Th e figure above presents the share feat 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 sharp drop to $70.51, thence rose to $79.64 reaching its peak in the period 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 various factors that affects performance in these quarter, they include the seasonality of its products, general economic condition, defy 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 evidential drop have been observed in the period under review. CONCLUSIONIn conclus ion, 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 slowed 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 dominance in the market. 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