I’ve always wanted to own my own business since I was a kid, but never knew how I could make that a reality. I researched and researched constantly for advice and tips on where to start and how to get started. One day, I stumbled upon an article that talked about how Philip Knight, founder of Nike but was originally called Blue Ribbon Sports, teamed up with his college track coach, Bill Bowerman, and they each put in $500 to get the company started.
Their strategy was to “import Japanese sneakers called Onitsuka Tigers and sell them at higher price points in the US, making a profit on the markup (businessinsider.com).” The reason they were importing from Japan instead of Germany, like Adidas, was because the cost of labor was /are cheaper in Japan. When Blue Ribbon Sports rebranded as Nike in 1971, a lot of well-known athletes were wearing their shoes, which helped double Nike’s profits annually, and the rest is history.
The simple fact that they were able to start this billion-dollar corporation with just $1,000 was truly inspirational to me, and therein lies why I chose Nike to do my final project on.
They’re a relatively known company, but for those who haven’t heard of Nike, they’re a company that sells footwear, apparel, equipment, accessories, and services (specifically in the athletic department). Throughout this paper, I will be talking about Nike’s top managers and their compensation, Nike’s stock, and financial details, recent news regarding their acquisitions, along with information on Nike’s bonds, capital structure, dividends, and dividend policy, and their initial public offering (IPO).
To start off, I will be discussing how Nike’s organizational structure is the key element that makes them such a profitable, well-known company and separates them from their competitors.
According to panmore.com, “A company’s organizational or corporate structure is the composition and system design applied on the interconnections among employees, groups, and divisions of the business,” and Nike’s is like no other. The goal behind Nike’s organizational structure is to be able to adapt when dealing with market differences, which is why they serve as an example of how regional flexibility must be apart of any business strategy.
The elements of Nike’s organizational structure is what gives them so much flexibility to address the different needs and preferences for athletic shoes, apparel, and equipment in regional markets. The company’s structure combined with its culture they’ve created, enables Nike to combat the financial and business developmental effects of competitors, like Adidas and Under Armour. The reason why Nike has such a great culture and structure within their organization is due in large part to its executives.
At Nike, Inc., it appears they have nine executives running things. Their names are Andy Campion, Elliot Hill, Hilary Krane, Monique Matheson, John Slusher, Michael Spillane, Eric Sprunk, Philip Knight, and Mark Parker. Andy Campion is the EVP and Chief Financial Officer (CFO) and he joined Nike’s team in 2007. According to about.nike.com, he is responsible for “…all aspects of financial management for the company’s flagship brand.” Based on is salary, just over $9.3 million (www1.salary.com), I’d say he is doing a great job.
Elliot Hill is the next person on the list, and he is the President of Consumer and Marketplace. He is in charge of “Nike Brand’s four geographic operating regions: North America, Europe, Greater China, and Asia Pacific and Latin America (APLA)”. He has been apart of Nike’s organization since 1988, but there is no documentation on his compensation.
Hilary Krane is one of two female executives at Nike, Inc. She is the EVP, Chief Administrative Officer & General Counsel. She brings a handful of knowledge to her roles from previous experiences and she is compensated very well for all the work she has done to get to where she is today, as her salary sits at nearly $6.9 million.
Next up, is Monique Matheson, the other female executive. She has been with Nike for 19 years and oversees “all aspects of Talent Management and Diversity and Inclusion.” I couldn’t find out how much her salary is, but my guess is she’s up in the millions just like the other executives.
John Slusher is the EVP of Nike Global Sports Marketing, and he “oversees all of Nike’s global sports marketing efforts, including managing relationships with Nike’s top athlete, team, league, and federation partners.” Sounds like Mr. Slusher does a lot for the company and gets paid what he deserves, as he is paid $6.7 million annually.
Michael Spillane is the President of Categories and Product. Spillane has been with Nike since 2007, and he is responsible for “developing the strategy that drives the creation of all Nike footwear, apparel, and equipment, and he leads the merchandising of all products to the global marketplace.”
Eric Sprunk is the Chief Operating Officer (COO). He is in charge of “the company’s robust and innovative supply chain,” while also focusing on Nike’s “critical capabilities, connecting internal functions under and integrated Global Operations team.” He has spent the last 26 years working for Nike, Inc., which is why he is the second-highest-paid executive, as his salary stands at $9.5 million. For the last two gentlemen on the list, I’m going to include them together because they are both one of Nike’s top shareholders as well.
Nike’s top shareholders are Philip Knight, Travis A. Knight, Mark Parker, and Trevor Edwards. Each one plays a pivotal role in monitoring the performance of the company. P. Knight founded Nike with his track coach, Bill Bowerman. He is now an observing, non voting board member who retired as the company’s chairman in June of 2016. T. Knight is P. Knight’s son, and is the largest shareholder in Nike, according to investopedia.com. Parker is Nike’s chairman and CEO. Nike has benefited greatly from Parker’s time as CEO, “…as Nike has seen its market cap more than double in size (investopedia.com),” and he gets paid what he deserves, as his salary is just under $9.5 million. Edwards is currently the fourth-largest shareholder in Nike and doesn’t do too much anymore for the company because he left due to accusations made against him regarding improper workplace conduct, but he got paid over $9.8 million for Nike’s 2018 fiscal year, making him the highest-paid executive. While researching information about the shareholders and executives, I found that Nike has two share classes, Class A and Class B, and that their annual dividend rate has increased since 2004 (investors.nike.com).
Nike’s market value is also less than invested capital (book value), and according to stock-analysis-on.net, Nike’s market value added (MVA) increased from 2016 to 2017 and from 2017 to 2018. Nike routinely outperforms not just their competition, but also their own expectations. Just take a look at Nike’s p/e ratio and financial statements for example.
The p/e ratio is calculated by taking the latest closing price and dividing it by the recent EPS number. This ratio is a simple and effective way to find out if a stock is under or overvalued. According to macrotrends.net, as of February 21, 2019, Nike’s p/e ratio is 33.14, which is very good because this means that investors are willing to pay $33.14 for every dollar of a company’s earnings. As for Nike’s Income Statement, it wasn’t as impressive. From what I read on stock-analysis-on.net, Nike’s operating income, income before tax, and net income increased from 2016 to 2017, but declined slightly from 2017 to 2018. However, Nike’s revenues did increase from 2016 to 2017, and also from 2017 to 2018. They also have a great tax structure in place.
According to stock-analysis-on.net, “Nike accounts for income taxes using the asset and liability method.” What this means is that Nike recognizes “deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.” Nike’s current and deferred income tax expenses (benefit) both declined from 2016 to 2017, but then increased from 2017 to 2018, which blew past 2016’s numbers. Nike seems to be doing the right things when it comes to their taxes, which is why they’ve probably never been in financial distress and won’t be declaring bankruptcy anytime soon.
Macroaxis.com defines financial distress as “an operational condition where a company is having difficulty to meet its current financial obligations towards its creditors or to deliver on the expectations of its investors,” and judging from their financial statements, Nike has no problems regarding that, which is why their probability of bankruptcy is 1%. I don’t care who you are, that to me is very impressive and is due in large part to their fantastic executive, that were mentioned earlier, running the business. Due to their huge success, Nike has acquired some brands along the way. They’ve always owned Brand Jordan, but their brands like Converse and Hurley came to Nike by acquisition in 2003 and 2002, respectively. Most recently, Nike acquired Zodiac in March and Invertex in April of 2018 (crunchbase.com). All together, Nike has acquired seven company’s over its 55-year history. Not only that, Nike’s bond ratings are off the charts as well.
Nike has five corporate bonds. The shortest one is NKE3998567, which matures on 05/01/2023, and the longest bond is NKE4416434, which matures on 11/01/2046 (finra-market.morningstar.com). All of their bonds have the same ratings (Moody’s A1 and S&P AA-) and I think this is because they were all issued by the same company. Bond ratings are very important because they offer some insight on a company’s financial strength. Standard & Poor’s (S&P) is the major agency that looks into bond issuers, and the grades AAA, AA, and A are considered “high quality” grades. Moody’s rating of A1 is the “fifth-highest rating a debt issuer can receive (investopedia.com).” Each of these bond ratings mean that Nike has “stable financial backing and ample cash reserves,” and the risk for investors is very low. However, what makes Nike such a profitable, well-known company and separates them from their competitors is their capital structure.
To start off, capital structure is “how a firm finances its overall operations and growth by using different sources of funds (investopedia.com).” This means that a company’s capital structure can be a mixture of their long-term and short-term debt, and common and preferred equity. In Nike’s case, their capital structure has high equity capital relative to debt, with a debt-to-capital ratio of 0.28, which means Nike is worth investing in because the higher the ratio, the riskier the company is to invest in, and since Nike’s ratio is low, it’s almost guaranteed that you’ll earn your investment back and then some. Nike’s debt-to-capital ratio being this low is just as impressive as its dividends and its policy.
Nike’s quarterly dividends on common stock are paid four times a year on or around the 5th of January, April, July, and October. According to streetinsider.com, “Nike declared a quarterly dividend of $0.22 per share…” It’s hard to say whether Nike pays high or low dividends, but their dividends have increased every year since 2004. The article also stated that Nike has an annual dividend yield of 1%. With Nike having a low dividend yield, people may be less inclined to invest in them. However, if you invest “$1,000 during Nike’s initial public offering (IPO) without reinvesting dividends, your investment would be worth $52.15 million in October 2018 (investopedia.com).”
For those that aren’t familiar with it, an IPO is “the process of offering shares in a private corporation to the public for the first time… (investopedia.com).” Growing companies who are in need of capital will typically use IPOs to raise money, while more established companies might use an IPO to allow owners to “exit some or all their ownership by selling shares to the public.” Nike first launched to the public markets in an IPO in December of 1980. At that time, they purchased 5,555 shares for $1,000 at $0.18 per share. After Nike’s seven 2-for-1 stock splits since 1983, an investor would’ve had 711,040 shares, hence the $52.15 million I mentioned above.
In conclusion, Nike is a well-run company that has a great structure and is a very profitable organization that is flexible, which allows them to deal with adjustments to market differences and stay ahead of their competition. I chose Nike in the beginning because I love their shoes and would like to work for a big corporation like this one day so it’s best that I start learning the ins and outs of the financial side now rather than later.