Nike vs. Reebok Financial Results Analysis (Fiscal Year 1998-2002)

Essay by samsuUniversity, Bachelor'sA, October 2004

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I. Background -------------------------------------- 3

II. Financial Ratios Analysis ----------------------- 3

III. WACC Analysis ----------------------------------- 9

IV. Working Capital Management ---------------------- 13

V. Dividend Policy and Tax Treatment Impacts -------- 15

VI. Comments ----------------------------------------- 15

Assumptions and Notes ---------------------------- 17

I Background

Nike, Inc., a Oregon corporation incorporated in 1968, and Reebok International Ltd., a Massachusetts corporation organized in 1979, are both global companies engaged in the design and marketing of sports and fitness products. We will analyze their past five year's financial reports to estimate who would be the preferred considerable company in the stock market.

Before we begin analyzing financial statements, we should keep in mind that our analyses are to better understand the company's performance. Then based on it, we predict the future potential investing opportunity. And we will examine these two companies through analyzing: profitability ratios, assets utilization ratios, capitalization ratios, sustainable growth rate, and market ratios.

II Financial ratios analysis

A. Profitability analysis

We first compare revenues, ROS, Gross margin, operating profit/sale, EBIT/sales, and EBITDA/sales for both companies.

Exhibit 1-1

Comparison of sales growth rates

Growth rates 2002 2001 2000 1999 1998

NIKE 8.13% 4.26% 5.49% 2.49% -8.13%

REEBOK 4.51% 4.45% -1.19% -10.07% -11.50%

Nike's sales growth was negatively impacted by one of its biggest domestic footwear distributors, but its international business is booming. Obviously, the U.S. athletic footwear market is crucial to Nike, and it's working to find replacement distribution instead of the lost Foot Locker space. But at the same time, Nike is focusing on its huge international business and has been making big successes overseas.

Reebok, on the other hand, is in the opposite position. As a smaller company, and one intent on rebuilding its brand and returning to glory, it's focusing a great deal of energy on its U.S. footwear...