UV0010 NIKE, INC.: COST OF CAPITAL On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual-fund management firm, pored over analysts’ write-ups of Nike, Inc., the athletic-shoe manufacturer. Nike’s share price had declined significantly from the beginning of the year. Ford was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies, with an emphasis on value investing. Its top holdings included
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this report we focus on Nike's Inc. Cost of Capital and its financialimportance for the company and future investors. The management of NikeInc. addresses issues both on top-line growth and operating performance. The company's cost of capital is a critical element in such decisions and it isimportant to estimate precisely the weighted average cost of capital (WACC). In our analysis, we examine why WACC is important in decision making andwe show how WACC for Nike Inc. is calculated correctly. Also
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industry are these businesses competing in? Nike Inc. and Adidas AG are the two largest and arguably well known sportswear companies in the world. Both companies compete against one another in the numerous industries including the athletic footwear industry. Nike Inc. is in itself the world’s largest athletic footwear supplier, holding an astonishing 50% of a 20 billion dollar global industry (S&P, 2010) and 40% of the US market (IBIS, 2010). Nike powers its massive lead on the market with innovative
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Nike Inc. Case 1. What is the WACC and why is it important to estimate a firm’s cost of capital? WACC is weighted average cost of capital, which is the expected rate of return on average from all the company’s existing debts and securities. It takes into account all different types of financing in the company’s capital structure. The reason it is important to estimate WACC is because it measures what it costs the firm to take on a project based on its current Debt and Equity mix. When the
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Name Institution: Course: Date: Financial Statement Analysis for Nike Nike Corporation released its financial statement for the year ended May 2014. Nike Inc. is a sports apparel manufacturing firm with diverse interests all over the world. The financial statements suggest a strong company whose stocks are not undervalued, but with the potential of exploding higher having shown sustained strengths when the Europe, American, and Chinese economies were at the brink of disaster. Despite sustaining
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Nike is the leading manufacturer of athletic shoes, equipment and apparel. Nike is one the most heavily advertised and best known brands in the world. Nike has reach over 170 countries, subsidiaries name include: Cole Haan, Converse Inc., Hurley International LLC, Nike Golf, Umbro Ltd., to name a few. As of May 31, 2009 Nike operated 338 retail stores in the United States of America and 336 retail stores internationally
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Case Study: Nike, Inc.: Cost of Capital BUSFIN 4214 Written By: Joe Nau Nau.33@osu.edu Section: 32347 Cost of Capital NorthPoint Group’s strategy consists of identifying and investing in undervalued public companies. Joanna Cohen, an assistant to a portfolio manager at NorthPoint, is asked to help evaluate whether Nike Inc. is undervalued. Analysis by the portfolio manager shows that when Nike’s cash flows are discounted at 12% their shares are overpriced, however, when discounted at rates
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13/3/2013 Nike, Inc. Cost of Capital 1 Discussion Questions • What is the WACC and why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers? • Do you agree with Joanna Cohen’s WACC calculation? Why or why not? If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. What mistakes did Joanna Cohen make in her analysis? Which method is best for calculating
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Nike, Inc.: Cost of Capital Nike, Inc.: Case Background: NorthPoint Large Cap Fund weighing whether to buy Nike’s stock. Nike has experienced sales growth decline, declines in profits and market share. Nike has reveal that it would increase exposure in mid-price footwear and apparel lines. It also commits to cut down expenses. The market responded mixed signals to Nike’s changes. Kimi Ford has done a cash flow estimation, and ask her assistant, Joanna Cohen to estimate cost
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Group, Kimi Ford, pored over analysts’ write-ups of Nike, Inc. NorthPoint Large Cap fund was deciding on whether it would be wise to purchase stock from Nike. The issue was that Nike has experienced sales growth decline, where not only was there a decline in profits, but a decrease in their market share as well. In attempt to recuperate from this situation, Nike then suppressed their concern for their company by creating more merchandise. Here, Nike would enhance their exposure in mid-price footwear
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