Financial Reporting Project

Companies: NIKE, Inc. & Under Armour, Inc.

Esme Grotta, Kyle Pinto, Holden McKenna,

Pranati Bala, Aadyah Vadapalli
Section: 2
Group: 2
November 11, 2024

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PART A:
Company Background
1) NIKE, Inc. is listed on the New York Stock Exchange (NYSE). [1]
2) The ticker symbol for NIKE, Inc. is NKE. [1]

3) NIKE, Inc. is a publicly traded, multinational corporation that primarily deals with the

design, manufacture, and sale of athletic footwear and apparel. The company is headquartered in

Beaverton, Oregon, USA and primarily consists of 3 brands: NIKE, Jordan, and Converse. [2]

The company employs close to 80,000 workers worldwide and has over 1,000 retail stores

throughout North America, Europe, the Middle East, Africa, Greater China, Asia Pacific, and

Latin America. As of 2024, NIKE is the largest seller of athletic footwear and apparel in the

world. [1]

4) The opening stock for NIKE, Inc. was worth $104.18 per share for the fiscal year ended May

31, 2024. At the end of the same fiscal year, June 1, 2023, the closing stock was worth $93.45

per share. [Error: Reference source not found] Throughout the fiscal year, the stock decreased in

value by a total of $10.73.

Understanding the Annual Report and 10K: Profit,

Capital, and Cash Flow
1) Net income for the current fiscal year ended May 31, 2024, was $5,700 million, net income

for the previous fiscal year ended May 31, 2023, was $5,070 million, and net income for the year

ended May 31, 2022, was $6046 million. [1] Between 2022 and 2023, NIKE saw a 16.1 %

decrease in earnings but increased 12.4 % in earnings between 2023 and 2024. Overall, in the

three-year span, NIKE has experienced a decrease in net income of 5.7 % , seemingly due to

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increased income tax expenses for the years 2023 and 2024. When analyzing the trend of net

income before income taxes, this value slightly increased by 0.7% over the 3-year span.

Gross Profit
2) The gross margin percentage (GMP= ) is a value that indicates how well a
Net Sales

company can generate profits from its sales. For current year and the previous two years, these

numbers are calculated as follows: [1]

Net Gross Gross Margin

Year Sales* Profit* Percentage (%)
2024 51362 22887 44.56
2023 51217 22292 43.52
2022 46710 21479 45.98
(*Recorded in millions $)

Typically, the larger the gross margin percentage is, the more efficient the company was

at converting sales into profits. In 2022, NIKE had its largest GMP of 45.98%, which decreased

by 2.46 percentage points into 2023, and slightly increased by 1.04 points leading into the

current fiscal year. These trends indicate that NIKE was able to convert a consistent percentage

of its sales into gross profit each year.

3) Stockholders’ Equity for the current year was reported at 14,430 million and for the year

before was reported at 14,004 million. [1] This change represents an increase of 3.0%, due to an

increase in the amount of capital exceeding the stated value of common stock (APIC). From

2023 to 2024, APIC increased by 8%, indicating that NIKE sold more shares to investors in the

current fiscal year.

4) In the most current year, the cash provided by operations was $7,429 million and the net

income was $5,700 million. [1] The lower net income for 2024 is due to asset depreciation, a

decrease in inventories, and an increase in accounts payable. [1] Typically, when cash flow from

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operations is larger than net income, the company is generating enough cash from its daily

operations to cover the operating expenses. This is a good indicator for strong financial health.

5) The capital structure of NIKE for the most current fiscal year was primarily based on debt

financing. The total debt in this period was $18,496 million, comprised of long-term debt

($7,903 million) and current liabilities ($10,593 million), and the total stockholders’ equity was

$14,430 million. [1] The debt-to-equity ratio ( Total

Equity )
Debt
for this period was

1.28, indicating that more of NIKE’s financing came from borrowing money (debt) than from

investors funds (equity). While more funding came from debt financing, stockholders’ equity

financing still played a large role overall, and this difference is small enough to not be a cause for

concern.

6) NIKE, Inc. received assurance via an audit from the public accounting firm PwC LLP. The

purpose of such an audit is to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatements, and whether the financial reporting was

effectively controlled internally. There were no material issues noted by the auditors, but they did

identify a critical audit matter (CAM) regarding how NIKE, Inc. accounts for income taxes. The

CAM was issued due to a high degree of auditor judgement and effort required to perform

procedures and evaluate evidence for NIKE’s income taxes. [1]

PART B:
(i) Profitability
Nike has a profit margin of 11.1% in the current year which means about 11 cents of

profit is earned for every dollar of revenue earned, showing a healthy profit margin. While this

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margin may be considered average within the broader market, it is impressive in the competitive

athletic apparel and footwear industry. Compared to Under Armours' loss of 4.1 cents for every

dollar of revenue earned, Nike is doing exceptionally well. One major reason for Nike’s success

is their brand recognition, having ranked 14th most valuable global brand in 2024 [5]

Nike has a very strong Return on Assets (ROA) of 15.1% which demonstrates they are

making smart investments and effectively using their resources to generate profit. [8] This

translates to Nike making about 15 cents of profit for every dollar of assets they own. Under

Armour has a substantially worse ROA of –4.8% meaning they lose about 5 cents for every

dollar in assets they own, most likely showing they made poor decisions on investments. Nike’s

superior ROA demonstrates their strong leadership and market dominance.

(ii) Turnover
Nike’s receivable turnover is 12.003%, meaning they collect cash from their receivables

almost exactly 12 times a year or once a month. This is a sign that Nike has a client base which

can reliably and consistently be collected from, and that they have good policies in place to

ensure bad debt is minimized. Under Amour also underperforms Nike in this area with a ratio of

7.77% or 7.77 times a year. This makes it harder for Under Armour to have an accessible cash

flow available for reinvestment in the business.

With an Inventory Turnover of 3.565, Nike is replacing its inventory about 3.6 times a

year. This is not optimal for athletics wear companies because the market is changing all the

time, and trends are often short lived. Nike runs the risk of inventory becoming obsolete while it

is waiting to be sold. While this ratio is not a reason for serious concern, it does show an area for

future improvement. Under Armour is on the opposite end of the spectrum with an Inventory

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turnover of 108.97, significantly higher than Nike. This is considered too high for most

companies and is likely due to improper inventory stocking. [9] Under Armour is likely running

out of stock frequently and missing out on profits.

(iii) Liquidity
Nike does an effective job at maintaining liquidity, which is critical for flexibility and

operational stability. Nike’s current ratio is 2.396 which means they have about 2.4 times as

many current assets as current liabilities. A healthy company usually has a current ratio between

1.2 and 2 [10], so 2.4 is very promising. Under Armour also has excellent liquidity with a current

ratio of 2.457, even better than Nike.

Another metric for liquidity is the quick ratio which Nike also exceeds in. Nike’s ratio of

1.511 means that for every 1 dollar of current liabilities, Nike has about 1.5 dollars of highly

liquid assets. This reveals that Nike has access to a significant amount of liquid assets like cash

and cash equivalents which are essential for adapting to a changing market, investing in new

innovative products, and reimbursing stockholders. Under Armour similarly has a quick ratio of

1.387 showing their current assets aren’t as liquid as Nike’s, however, they are still in a great

position.

(iv) Solvency
Nike borrows a large amount of money from banks in order to fund their operations. This

is evidenced by their debt-to-equity ratio of 1.641 which means for every 1 dollar of equity, Nike

has about 1.64 dollars of debt. While this is a large amount of debt, it is reasonable for a

company such as Nike which is very large and shows consistent earnings growth. Under Armour

incurs less debt and has a debt-to-equity ratio of 1.211 which makes sense due to their smaller

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size and smaller earnings. Both Nike and Under Armour, show healthy solvency in their debt-to-

equity ratios.

Nike’s impressive solvency really shines through with their high times interest earned

ratio. Nike generates 42.615 times more income before taxes than their interest expenses. This

really highlights how much more money Nike is making than the cost of their interest expenses.

It also provides clarification on how they are able to maintain a debt-to-equity ratio of 1.641.

Under Armour does substantially worse than Nike here with a times interest earned of 0.246.

This is a very concerning figure as it shows that Under Armour is not making enough money to

cover its interest expenses. Without immediate attention this problem could spiral out of control

and lead to significant problems for the company.

(v) Market ratios

High earnings per share (EPS) is highly desirable in a company as it shows they can

generate money for their stockholders, motivating others to invest as well. Nike has an EPS of

3.756 which shows they are generating 3.756 dollars in profit per share of outstanding stock.

Nike is effectively turning revenue into profit, which it can then return to investors. Under

Armour on the other hand is losing money for its investors with an EPS of -0.527. For every

share of stock Under Armour has, they lose about 53 cents in profit.

The last ratio is the price/earnings ratio (P/E), which shows the market's confidence in the

company to continue to grow and generate revenue. Investors are willing to pay 24.867 times the

earnings per share of stock in order to buy a share of the Nike company. This shows that

investors have faith in the future success of Nike. This is a healthy number and is further

evidence for Nike as an industry leader. While Under Armour investors are willing to pay more

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than the EPS in order to purchase stock, a P/E of 13.151 is not that strongest indicator of investor

confidence. A good P/E ratio is usually between 20-25 which would place Nike in a good spot

and Under Armour as underperforming. [11]

Recommendations
A. Short-Term Credit: Creditors should lend to Nike confidently, given its excellent

liquidity, operational cash flow, and strong ability to meet short-term obligations.

B. Long-Term Credit: Creditors should also extend long-term loans, as Nike’s solvency

metrics and balanced capital structure indicate its capacity to sustain debt responsibly

over time.

C. Investor Action: Investors should buy and hold Nike stock. The company’s profitability,

market leadership, and long-term growth potential position it as a stable and rewarding

investment.

Nike Inc. Stands as a global leader in the athletic apparel and footwear industry, showcasing

robust financial health and operational efficiency. The company’s performance across key areas

such as profitability, liquidity, solvency, turnover and market valuation highlights its ability to

navigate complex market dynamics while maintaining a competitive edge. This financial

strength, coupled with its reputation as a market innovator, makes Nike a strong candidate for

both creditor financing and investor confidence.

A. Short-Term Credit Recommendations

Creditors should confidently extend short-term loans to Nike, Inc. The company’s

liquidity ratios indicate that it has ample resources to meet short-term obligations. [6] [7] With a

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current ratio of 2.396, Nike holds nearly two and a half times the current assets relative to its

current liabilities. This provides assurance that the company can easily cover immediate financial

obligations such as accounts payable and accrued expenses. Moreover, the quick ratio of 1.511

suggests that Nike can maintain this strength even if inventory cannot be quickly liquidated.

Additionally, Nike generates significant cash flow from operations, totaling $7,429

million in 2024, which exceeds its net income. This healthy cash flow indicates the company’s

ability to generate sufficient funds from its core activities to sustain short-term commitments. [6]

However, creditors should remain aware of potential risks, such as the possibility of slower

receivables turnover during economic downturns, which could slightly impact cash flow

reliability. Despite this minor risk, Nike’s strong operational cash management and liquidity

position make it a prime candidate for short-term financing.

B. Long-Term Credit Recommendations

For long-term lending, creditors should also extend loans to Nike, Inc., as the company’s

financial structure and solvency metrics demonstrate its capacity to sustain debt obligations over

extended periods. [6] [7] Nike’s Times Interest Earned (TIE) ratio of 42.62 is a particularly strong

indicator of its ability to meet interest payments on existing debt. This exceptional level of

interest coverage underscores the company’s resilience, even in scenarios of rising interest rates

or increased borrowing costs.

Nike’s moderate debt-to-equity ratio of 1.64 further indicates that the company has struck

a balance between equity and debt financing. While debt comprises a significant portion of

Nike’s capital structure, it is within industry norms and does not raise immediate concerns about

over-leverage. Furthermore, Nike’s global presence, diversified product offerings, and strong

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brand equity reduce the likelihood of long-term financial instability. Creditors should remain

mindful of external factors, such as global economic uncertainties or changes in consumer

behavior, but these are mitigated by Nike’s strategic management and consistent market

leadership.

C. Investor Recommendations
From an investor’s perspective, Nike represents an attractive buy-and-hold opportunity.

The company’s profitability metrics, including a profit margin of 11.1%, demonstrate its ability

to generate significant earnings relative to revenue, outperforming key competitors such as

Under Armour, which experienced losses during the same period. Nike’s Earnings Per Share

(EPS) of 3.756 and a Price-to-Earnings (P/E) ratio of 24.867 further reflect strong market

confidence in the company’s growth trajectory. The P/E ratio is reasonable within the industry,

suggesting that while Nike’s stock is slightly premium-priced, it remains a worthwhile

investment due to its stable earnings and strong growth potential.

Despite a slight dip in stock price during the fiscal year (closing at $93.45, down from

$104.18), Nike’s long-term prospects remain positive. The decrease in share price may be

attributed to broader market volatility rather than company-specific issues, as the fundamentals

of the business remain strong. Furthermore, Nike’s global brand recognition—ranked as the 14th

most valuable brand worldwide in 2024[5]—reinforces its ability to maintain customer loyalty and

adapt to changing market demands.

Investors should consider buying Nike’s stock as a long-term investment. Its strong

financial metrics, coupled with an unmatched global presence, make it a stable asset in any

portfolio. While short-term fluctuations in stock price may occur, Nike’s consistent profitability

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and strategic focus on innovation and market leadership provide assurance of long-term value

creation.

Conclusion
Nike, Inc. exemplifies financial strength and operational success, making it a compelling

choice for both creditors and investors. The company’s ability to manage its resources

effectively, generate consistent profits, and adapt to market challenges highlights its status as a

leader in the athletic apparel and footwear industry. Whether in the short or long term,

stakeholders can confidently engage with Nike, assured of its strong financial health, innovative

edge, and unwavering commitment to growth. This positions Nike not only as a dependable

borrower but also as a valuable investment opportunity for years to come.

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 Citations

1. U.S. Securities and Exchange Commission. "Nike, Inc. - 10-K Annual Report for the Fiscal Year

Ending May 31, 2024." U.S. Securities and Exchange Commission, 31 May 2024,

https://www.sec.gov/Archives/edgar/data/320187/000032018724000044/nke-20240531.htm. Accessed

19 Nov. 2024

2. Nike, Inc. "Brands." Nike Careers, https://jobs.nike.com/brands. Accessed 19 Nov. 2024.

3. “Yahoo Finance – Stock Market Live, Quotes, Business and Finance News.” Yahoo! Finance, Yahoo,

uk.finance.yahoo.com/. Accessed 13 Nov. 2024.

4. “Best Global Brands - the 100 Most Valuable Global Brands.” Interbrand,

Omnicom, 24 Oct. 2024, interbrand.com/best-brands/.

5. Downie, R. (2023, February 27). Nike Stock: Capital Structure Analysis (NKE). Investopedia.

https://www.investopedia.com/articles/markets/050716/nike-stock-capital-structure-analysis-nke.asp.

Accessed 17 Nov. 2024.

6. O’Neill, Amanda C, and Katherine Heng. “S&P Global Ratings.” Spglobal.com, 17 Oct. 2024,

disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3269682. Accessed 17

Nov. 2024.

7. Zinn, Dori. “Return on Assets (ROA): The Key Metric for Measuring Business

Efficiency.” Business Insider, Business Insider, 25 Sept. 2024,

www.businessinsider.com/personal-finance/investing/return-on-assets.

8. Fernando, Jason. “Inventory Turnover Ratio: What It Is, How It Works, and

Formula.” Investopedia, Investopedia, 16 Sept. 2024,

www.investopedia.com/terms/i/inventoryturnover.asp.

9. “What Is a Good Liquidity Ratio?” FreshBooks, 11 Sept. 2024,

www.freshbooks.com/hub/accounting/good-liquidity-ratio#:~:text=Obviously%2C

%20a%20higher%20current%20ratio,liabilities%20to%20covers%20its%20debts.

10. Spagnolo, Sarah. “What Is a Good P/E Ratio? A Beginner’s Guide.” Stash, Stash

Financial, Inc., 5 Apr. 2025, www.stash.com/learn/what-is-a-good-pe-ratio/.

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