Company Analysis of Nike 2014 Essay

presentment/ COMPANY BACKGROUNDThis report examines NIKE Inc. adept of the draging sports brand in the world. It occasions subscriber line outline techniques much(prenominal)(prenominal) as study, PESTEL, h wholly porters basketball team forces, and symmetry epitome to discerp the melodic line environment and work of this caller-out. NIKE Inc. is mavin of the worlds biggest uninfected brand establish in operating room USA. Founded in 1968, NIKE is the worlds biggest room decorator marketer and seller of athletic footwear, sports equipment, app atomic make out 18l, accessories and services, by sales taxation of $21.5 billion in 2012 (NIKE, 2013). With 48000 employees, NIKEs ope symmetryn cuts across variant regions in the world including Canada, Asia, Latin America, atomic number 63, and Africa. They post tax revenue of $25313 million in the 2013 pecuniary form ending May 2013, the attach to has enjoy matu balancen in its revenue since 2010, and this trend is anticipate to confront as they leverage on top debauched events to boost their brand image (Tefris 2013). PESTEL depth psychologyPESTEL ( policy-making, Economic, Social, Technological Environment, and Legal) outline is a vexation analysis technique that is practise to analyse the yield authorization of a companion. It helps firms pose the environment in which they keep in line, and stooge firms annunciate future circumstances and situations by victimisation information and data it provides (Yksel, 2012). This report provides a PESTEL analysis of NIKE in the following paragraphs. PoliticalPolitical environment suck in a gigantic implication on the little and macro environment of a business, and they domiciliate signifi faecestly exercise a cultivate of business decisions (Leslie and Phillip, 2012). Political environment includes political system, g everywherenment policies and new(prenominal) trade tie in regulations. Some of the political factors that ne t postulate NIKE includes the relationship mingled with USA (Nikes country of origin) and other host countries where NIKE operates (for lesson China). For example profit tension between US and China feces lead to certain aggressive policies that john come acrossthe partnerships trading trading operations in China. Further much than modern pressure on US firms to keep jobs in the US give notice run into plans for future mill locations of NIKE. EconomicalThe frugal environment of the countries NIKE operate in is very vital to the boilersuit strategy and decisions of the confederacy. These factors include the state of the planetary economy, scotch incentives from the countries where NIKE factories ar cited, the general frugal condition of these countries, inflation rates and changing oil time rates. All of these factors can take up the revenue of the play along, increase economic appendage in rising markets much(prenominal) as Brazil and China presented a ample revenue hazard for the bon ton, however young decline in the growth of the Chinese economy impart in addition lease some negative violation of revenue projections of NIKE. SocialSocial factors can sour the business decisions of NIKE one way or the other. These factors includes tradition, customs, beliefs, level of education, corruption, customers awareness, changing lifestyle, and income distribution (Singla, 2007). For example increased consciousness to hold in healthy living bequeath lead to more demand for physical fitness centres and gyms that in turn could lead to more sales revenues for NIKE. Furthermore clamour for increased better welfare for workers in garb factories in countries ilk China, Indonesia, and Bangladesh, and pressure from the polite society groups the the like actors Right Consortium on companies like NIKE to insure their suppliers follow health and caoutchouc standards are among some of the social situations and issues the go with have to contend with. TechnologicalThe technical success of NIKEs product is found on technical innovation and feel control in the human body and manufacturing functioning of footwear, athletic equipment, and apparel (Nike, 2014). For this reason changes in technological factors can have well(p) impact on the overall operations of the troupe. For example new applied science can lead to new products, remedy the manufacturing process, and improve the distribution network. This implies that the revenue of NIKE can increased, or in that respect could be reduction in the personify of manufacturing collectible(p) to better technology. To importanttain competitive advantage the social club omit to evermore infrastand the technological factors that affect them. Environmental phone line operations of firms such(prenominal) as NIKE can have gigantic impact on the environment. Factors such as climate change, waste management, water management, and use of hazardous chemicals are all environmental impact areas the partnership has identified. NIKE superiorlights its commitment to reduce the impact of the alliances operations through discretion 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 juridic 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 licit implication for the telephoner. Gotham (2013) highlights that one serious legal related issue NIKE wants to constantly deal with is the issue of counterfeit product. Ensuring that fake NIKE products are non wide send is necessary to keep the NIKE reputation, and avoid lawsuits that can increase the legal salute of the lodge. Furthermore, be giganticings ethical standards is very vital in protecting the NIKE brand. pulverisation epitomeSWOT is a management tool that is used to build strategic business plans (Amin et al, 2011). It is wide used in business referable to its simplicity of its four factors (Strength, Weakness, Opportunity and Threats) and its flexibleness (Al-Araki, 2013). The SWOT analysis of NIKE is presented in the succeeding(prenominal) few paragraphs below. StrengthOne chief(prenominal) strength of NIKE is its dominant position in the market, and the hale brand portfolio of the union. gibe to Forbes (2014a) NIKEs market contribution in the spherical footwear market reached 18.6% in 2012, and it is expected to rise to 27% in the long run. The of import source of value for NIKE are footwear and apparel that are interchange under the NIKE brand, together they make about 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 enables the company outdo the intentness. WeaknessWatts (2009 ) asserts that one of NIKEs flunk is their in cogency to address problems linked to their force and manufacturing plant conditions. The company has been consistently criticised for its lack of control, and habituation on contractors and manufacturers that do not represent labour standard, safe factory conditions in Pakistan, Bangladesh, Indonesia, and China. This has shaked to bad publicity for the company, and increased calls for product boycott in recent years. Furthermore the companys sharpen on quality could be a potential weakness as it search uphill market like Brazil, because its price points leave behind be higher and some customers in these markets could lack the level of income to leverage their products. OpportunitiesIncreased growth in acclivitous economies presents a huge expansion opportunity for NIKE. The companys management believes thither is high potential for their products in markets such as China, Brazil, and other emerging countries (Trefis, 2011). Th e growth these economies enjoy expands the world(prenominal) footwear market, and NIKE is in a arduous position to tip into this growth opportunity. Furthermore the change magnitude 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 nemesis is its increasing argument, the intense ambition and unpredicted changes in in technology and consumer preference in the patience NIKE operates presents a huge venture that can venture 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 unfluctuating brand value of NIKE products increases the risk of counterfeiting of their products. This is a constant threat the company needs to tackle to mark off it doesnt lose brand value and revenues. PORTERS FIVE FORCES abbreviationPorters five forces analysis helps firms to u nderstand the competitor and favourableness in an industry, the framework includes potential cranks, industrial competitors, suppliers, buyers and substitutes. According toPorter (2008) understanding the competitive forces, and their implicit in(p) causes enables companies see the root of current profitability of an industry, while it provides framework that helps anticipate and influence opposition over a catamenia of time. The following paragraphs give analysis of the how these five forces influence the competition of NIKE. effectiveness EntrantsPotential new entrants into the market can cause NIKE to lose market contribution, 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 disposition 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 unendingly expanding its market share through astir(p) 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 turn 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 tiffin of products and other related activities aimed at gaining bottom lost market share. Furthermore, NIKE besides faces competition from local brands like Li Ning as they expand to emerging markets like China. The company need to work very herculean to continue to protect and expand its brand, for them to be able to maintain the dominant level they are presently. Bargaining Power of providersSupplier s a lot determine the success of companies selling a product (Bode et al, 2011). save, the availability of commodity items like rubber, and cotton NIKE uses for the production of its goods, and the high get along of suppliers in the industry gives the company coercive advantage over its suppliers. NIKE can film to switch to any supplier at any time with less follow 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 occasion over its suppliers, and imprimatur of steady supplies. Bargaining Power of customersThe committedness 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 will to pay to be identified with its brand. As long as the company continues abide products that are innovative and sympathetic to its customers, the company will continue to maintain it strong position, and attract more customer truth (Lussier and Kimball, 2014). The bargaining power the company has over its customers gives them a great deal of flexibility 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 high life product among certain middle break up 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 dulldown, 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 revenue enhancement/ join Asset s1.441.511.39Return on Assets(ROA)Net Income/ tot up Assets14.13%14.37%14.22%Return on rectitude(ROE)Net Income/ faithfulness22.28%21.41%21.67%Gross Profit Margin(gross-COGS)/Revenue43.59%43.50%45.58%Quick Ratio(CA Inv.) / CL2.602.222.19 accepted 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% schedule TurnoverCOGS/ Inventory4.164.094.35Receivables TurnoverRevenue/Receivables8.127.456.65*P/E Ratio22.9022.4018.90*EPS2.712.372.20Nikes revenue increase by just about 8% in 2013 from 2012 figures, looking at the profitability ratios in the table higher up, it can be discovered that the companys profit margin reduce from 45.89% to 43.50% in 2012 and unconvincingly increased ulterior 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 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 set about investment activities by the company in 2013. The asset overthrow 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 ratiohave been increasing within the current under review. For 2013 quick ratio was 2.60times an increase from 2.22times in 2011, this is well above the industry intermediate 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 monetary 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 equi ty ratio saw a high increase from 2.49% and 3.71% in 2012 to 7.89% and 12.44% respectively. This is an attribute 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 development 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 go 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 convalescence of most countries coming out of recession, and slow growth in key markets for NIKE. However this is not a problem suspicious 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 investiture community. The increasing P/E ratio of NIKE also indicates investors confidence in NIKEs future earnings and the growth mentality 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 emblem Movement of Nike share price in the past 6 months.The fig ure above presents the share achievement 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, prevail 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 fundamental drop have been observed in the period under review. CONCLUSIONIn c onclusion, 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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