Strategy Analysis - Nike Upon analysis, it is observed that the fiscal year was a profitable one for Nike on more than one front. This suggests that the company’s strategic planning is based on becoming a successful and profitable organization with growing revenues. First of all, an increase in revenues from $19,014 million to $20,862 million as illustrated in the income statement indicates that the company has been able to increase its revenues by around 10% which is a sign of growth and profitability for the company. Though the expenses in the form of Cost of Sales also increased, yet the rate of increase was much lower in contrast to the increase in revenue.
Consequently, the company was able to earn a Gross Profit Margin of $9,508 million this year in comparison to $8,800 million last year. As revenues increased, so Demand Creation expense and Operating Overhead expense also augmented, implying that the company is willing to increase its expenses temporarily in order to generate greater streams of revenues. Nike has been successful in this mission as its net income has increased from $1,907 million in the fiscal year 2010 to $2,133 million in the fiscal year 2011, which is indeed a remarkable achievement and a sign of growth.
The diluted earnings per share have increased from $3.86 to $4.39, which suggests that the value of the company’s shares has risen tremendously. It also indicates the enhanced worth of the company in the eyes of the potential investors. Cash dividends per common share have amplified by $0.14 to $1.20. This has brought benefits to the shareholders of Nike as they now get higher dividends for the same number of shares.
In this manner, the company has been successful in building its value among the current stockholders (Besley and Brigham 2008, pp. 51-63). Though the cash flows of the company from operational activities have gone down from $3,079 million to $1,955 million, however, this is not a worrying sign as it indicates investments made by the company considering the long-term growth and development. Another element of success for Nike has been the increase in its total assets primarily comprising of short-term investments and inventories.
The return on equity of Nike has augmented to 21.8% signifying that the owners of the company now earn a greater return on the equity. Similarly, the return on assets has boosted up to 14.5% indicating that Nike is being able to generate a superior return on its assets matched up to what it did in the fiscal year 2010. A further encouraging sign is that the inventory turnover ratio has improved to 4.8 in 2011 weighed against 4.6 in the year 2010.
This implies that Nike is managing its inventory in a much better manner. Meanwhile, the decrease in current ratio by 0.4 has been mainly due to the long term investments made by the company. However, this is compensated by the rise in Price/Earnings ratio, which now stands at a healthy 19.2 (Nike Annual Report 2011, p. 16). Works Cited Besley, Scott, and Eugene F. Brigham. Essentials of Managerial Finance. Mason: Thomson/South-Western, 2008. Print. Nike Inc. 2011 Annual Report. (2011). 5 Apr. 2012.