Operating Budget for Nike
Nike is a popular athletic shoe brand across the world. The company offers a great variety of Running Nike Basketball, training, and sportswear. For decades the company has operated on an annualized budget to allow the effective and smooth running of the company. Traditionally the budget is divided into four distinct segments. In the fourth quarter of 2018, the company accrued and a net income of $9.9Billion.
Nike boosts a solid customer base due to its core competence in market research and its huge reliance on integrated digital services for advertisement purposes. The company has extensively penetrated the market and gained a significant market share that resonates with the different geographies while still expanding the North American market. This approach has that has helped the company gain a competitive edge in the market
In the fourth quarter of 2018, the company operated on a highly functional budget with positive returns. Nike sales revenue accrued 9.9Billion from athletic footwear, apparel, accessories, equipment, and services (Nike, 2018). The high net value is a product of massive market sensitization, venturing into new markets to build on a near-term opportunities platform. Furthermore, the company’s continued success is rooted in the newly integrated Consumer Direct Offense that gears to ignite digitally connected stories brand with innovative products that meet the customers’ preferences.
In today’s contemporary business world of fashion and lifestyle trends, Nike has capitalized on geographical, to ensure that nobody misses out on the latest brands by offering discount and allowance program to all their customers across all chain stores. In the fourth quarter of 2018, the discount coupon allowed a 3% discount to reduce consumer spending. Given the strong revenue growth and reduced tax rate, gross margin expansion the company net sales increased by 13 percent to $1.092 Billion while the Gross income stands at $1.27 Billion. On the other hand, the cost of sales sum up to $ 5.551billion
After a chronological analysis of the company’s competitive strengths and weaknesses over the last five years, it is evident that Nike has maintained its overall financial health. For instance, currently, Nike’s profitability ratio as measured by net profit margin stands at 11%. As a result, the highly competitive share Nike shares accrue huge dividends and are secure against internal risks. Nike’s prowess in innovation, marketing fuelled by a digital transformation to cut across all international geographies positions it a greater capacity to generate income relative to its operating budget, shareholder equity, and balance sheet assets. Despite the drastic shift in market conditions, rising costs, and increased competition amidst the ongoing COVID-19 pandemic, Nike has maintained a positive profit margin and is expected to diversify its portfolio to cushion itself against risks through wide-scale strategies initiatives. As a result, Nike boosts an attractive investment portfolio and provides a favourable environment for investors. This is primarily due to its attractiveness and ability to maintain an attractive share in the New York Stock Exchange. In addition, Nike’s listing in the NYSE showcases its potential to amass a diverse, high-quality portfolio that increases its market value. Primarily Nike’s valuation as computed by the earnings per share is at 0.69 for basic and 0.67% for diluted whereas the earnings before interest and tax (EBITDA) is at 1.259 billion (Nike, Inc. NYSE, 2021). According to the stock market valuation ratio grade index, this shows a positive and significant relationship to price to earnings, price to book, price to sales, price to cash flow, and the industry’s overall price. However, Nike’s valuation seems pricey as per its price-sales ratio, which stanza at 3.18 for two consecutive years (Bill Ackman Buys Nike, 2018).
In summary, Nike is the market leader in athletic and casual shoe production and sales. The company has curved a great horizon of the market with a functional operating budget. In addition, Nike has achieved the core competencies in market research, innovation, and consumer-centric digital approaches to set the foundation for Nike’s long-term, sustainable growth, and profitability.
Company Name: Operating Budget Q1
| [Prior Quarter]
|
Budget Projection Next Q | Var +/-
|
Var %
|
|
| Revenue | ||||
| Sales Revenue | 9,948,000,000 | 11,015,420,400 | 1,067,420,400 | 10.73% |
| Interest Income | – | |||
| Investment Income | – | |||
| Other Income | ||||
| TOTAL INCOME | 9,948,000,000 | 11,015,420,400 | 1,067,420,400 | |
| [Prior Quarter] | Budget Projection Next Q | Var +/- | Var % | |
| Costs and Expenses | ||||
| Cost of sales | 5,551,000,000 | 6,106,540,031.71 | 555,540,031.71 | 10.01 |
| Demand creation | 964,000,000 | 1,078,069,605.57 | 114,069,605.57 | 11.83 |
| Operating overhead expenses | 2,099,000,000 | 2,312,756,430.45 | 213,756,430.45 | 10.18 |
| Other expense | 53, 000,000 | (2,809,000,000.00) | (2,809,000,000) | (5400) |
| Salaries | – | – | – | – |
| Supplies | – | – | – | – |
| Insurance | – | – | – | – |
| Rent/Lease Payments | –
|
|||
| Interest expense | 11,000,000 | 9,307,692.31 | (1,682,307.69) | (15.38) |
| TOTAL EXPENSES | 8,678,000,000 | 6,697,673,760.03 | (1,980,326,239.97) | (22.82) |
| NET PROFIT/LOSS | 1,270,000,000 | 4,213,318,966.97 | 2,943,318,966.97 | 231.76 |
| Net Earnings Before Taxes (Gain or Loss) | 1,270,000,000 | 4,213,318,966.97 | 2,943,318,966.97 | 231.76 |
| Income Tax Expense | 178,000,000 | 15,232,692.31 | (162,767,307.69) | (91.44) |
| Net Earnings After Taxes | 1,092,000,000 | 4,198,086,274.66 | 3,106,086,274.66 | 284.44 |
| [Prior Q] | Proj. Q. | Change | ||
| Ratio Analysis (Choose a minimum of two) | ||||
| Profitability Ratio= Net profit margin=profit after tax /total sales | 0.11 | 0.38 | (0.27) | |
| Liquidity Ratio= Current Asset/ Current liabilities=15,501,000,000/6,708,000,000 | 2.31 | |||
| Solvency Ratio= Net income/ Liabilities= 1,092,000,000/13,491,000 | 0.08 | |||
| Valuation Ratio=Earnings per share= (Net income-Dividends payment)/Average common shares | 0.69 and 0.67 respectively | |||
| Leverage ratio=Debt/Equity=13,491,000,000/8,992,000,000
|
1.5 | |||
Source: Form 10-Q ; Nike quarterly financial statement
N/B: the projection has been based on historical growth rate from the third quarter of the year 2018. It is therefore assumed that the operating income statement for the next quarter will grow at the same rate
References
Bill Ackman Buys Nike. (2018, August 15). Guru Focus. https://www.forbes.com/sites/gurufocus/2018/02/15/bill-ackman-buys-nike/?sh=5996f4666751
Nike. (2018, June 28). NIKE, Inc. Reports Fiscal 2018 Fourth Quarter and Full Year Results. https://news.nike.com/news/nike-inc-reports-fiscal-2018-fourth-quarter-and-full-year-result
Nike,Inc. NYSE. (2021, January 1). Seeking Alpha. https://seekingalpha.com/
