income has fallen from $800 million to $580 million since 1997. Also its profit and market share have declines significantly from 48% to 42% (Shoe products market share) from 1997 to 2000 To counter this down fall Nike has decided to develop more athletic shoe products in mid-priced segment and also to push their apparel line. It has also decided to cut down expenses Analyst reactions are mixed – Lehman Brothers report a recommended “Strong Buy” whereas UBS Warburg and CSFB analysts expressed misgivings
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Introduction and Background Kimi Ford is a portfolio manager at NorthPoint Group‚ a mutual-fund management firm. In July 2001‚ Ford considered buying shares of Nike‚ Inc.‚ the well-known athletic shoe manufacturer. It would be prudent of Ford to base her assessment on Nike’s financial reports for 2001. Around the same time‚ Nike held an analysts’ meeting to disclose those financial results. They also addressed ways to revitalize the company‚ since share price was beginning to decline and revenues
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both on top-line growth and operating performance. The company’s cost of capital is a critical element in such decisions and it is important to estimate precisely the weighted average cost of capital (WACC). In our analysis‚ we examine why WACC is important in decision making and we show how WACC for Nike Inc. is calculated correctly. Also‚ we calculate the company’s cost of equity using three different models: the Capital Asset Pricing Model (CAPM)‚ the Dividend Discount Model (DDM) and the Earnings
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had negative effects on revenue Nike Inc. BackGround Headquarters : Beaverton Oregon Founded January 25‚ 1964 Since 1997 ◦ Net income has fallen from $800 million to $580 million ◦ Revenue tops around $9 million Market shares in U.S athletic shoes down ◦ 48% in 1997 ◦ 42% in 2000 Case Background ● NorthPoint Large Cap Fund deciding whether to buy Nike’s stock. ● Nike experienced sales growth decline. ● Nike has reveal that it would increase exposure in footwear and apparel lines. It
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1997 yet net income and market share were falling. Supply chain issues and the strong dollar negatively affected revenue too. Plans are in place to address top line growth and operating performance. To boost revenue‚ the company would develop more athletic shoes in the mid priced segment which has been overlooked by Nike in recent years. They also planned to push their apparel line which under strong leadership had performed very well to control expenses. Revenue growth targets are around 8-10% and
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fallen $220 million. A study written by Douglas Robson printed in Business Week revealed that Nike’s market share in the U.S. athletic shoe industry had fallen from 48 percent to 42 percent since 1997. In addition‚ supply-chain issues and the effects of a strong dollar negatively affected revenues. In the meeting‚ management planned to increase revenues by developing athletic-shoe products in ranges varying between $70-$90 and push their apparel line. Nike’s executives expressed that the company would
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situation it decides to develop athletic shoes in the mid-price segment‚ enhance revenues from its apparel line and also commits to control its expenditure. When Ford realizes that the market analysis had mixed reactions‚ she generates her own estimates of cash flows from the available data and asks her assistant Joanna Cohen to estimate cost of capital. JOANNA COHEN’S ESTIMATION OF COST OF CAPITAL: Joanna considers the following parameters to estimate the value by using WACC‚ which are‚ whether to use
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FORECAST 4 Economy 4 Industry 5 Company 5 Investment thesis 5 Important value drivers 5 Risks‚ caveats‚ and exposures 6 VALUATION 7 Summary of important series 7 Selected growth rates 7 Components of weighted average cost of capital (WACC) 7 Free cash flows and economic profit 7 BIBLIOGRAPHY 9 SUMMARY As a student analyst for Drake University’s Krause Challenge Fund‚ I have conducted a financial analysis and valuation of Olin Corporation‚ a producer of Chlor Alkali products
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estimates. The cost of capital calculation or WACC helps to see if an investment is worthwhile to undertake. However‚ the assumptions made to calculate WACC‚ in this case‚ are the underlying problem because some of the assumptions made are incorrect. Analysis Nike held a meeting to discuss company performance at 2011 end of fiscal year. In the meeting‚ management discussed their strategy to improve revenues and net income by developing more athletic shoe products in the mispriced segment of selling
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Summary of Nike Case 张朦 袁潇 钟毅 张希圆 Nike is nowadays one of the world’s largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment accessories and services. In 2001‚ Nike’s share price declined to $42.09 on July 5. The unexpected fall in share price captures the NorthPoint Large-Cap Fund’s attention. The fund manager of this mutual fund‚ Kimi Ford‚ concerns whether it is the time to put Nike into the portfolio. On July 5‚ 2001‚ Nike discloses its fiscal year
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