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Nike, Inc is one of the largest suppliers of athletic apparel and footwear not only in the American market but also globally. This brand is considered the largest provider of sportswear and equipment worldwide, with its own network of retail stores used for product distribution (Nike, 2021). Since the market capacity is enormous, the company decided to focus on manufacturing clothing for running, soccer, training, basketball, and sports lifestyle (Nike, 2021). Nike performs its sales and operations in the markets of North America, Latin America, the Middle East, Europe, Africa, Asia Pacific, and Greater China (Nike, 2021). It owns 325 retail stores and seven distribution centers in the United States as well as 723 outlets internationally (Nike, 2021, pp. 2-3). This paper aims to discuss the market operations of Nike as well as its economic value added (EVA), return on total assets (ROA), and return on common equity (ROE). The brands popularity allowed Nike to maintain positive EVA, ROA, ROE, and high rate of free cash flow despite the economic recession caused by the pandemic.
Nikes operating market is sportswear, athletic footwear, and equipment for training. This market is highly competitive with such big rivals as Adidas, Reebok, V.F. Corporation, Li Ning, Puma, ASICS, Under Armour, and Lululemon Athletica (Nike, 2021). The overall operating model of this company revolves around designing new products, manufacturing, marketing campaigns, and sales (Nike, 2021). Nike strives to use an innovative approach when developing its clothing items to make them of a high quality and unique design (Nike, 2021). Furthermore, regarding marketing, this brand utilizes a simple and memorable logo, trademarks, and advertisement campaigns with the involvement of famous athletes and celebrities (Nike, 2021). Nike ensures that its intellectual property and products are not used by third parties for malicious purposes; hence, its trademarks, patents, and trade secrets are protected by legislation. Notably, despite the ongoing pandemic, cash flow persists, and to minimize losses, Nike decided to perform all financial transactions and calculations in its foreign centers in U.S. dollars (Nike, 2021). This corporations operations appear strategic and wise, allowing the brand to retain its leading position in the market.
Nikes recent report demonstrated a slight improvement in financial performance last year compared to the period of the lockdown and economic crisis. Since most purchases were made online during pandemic, customers did not have the opportunity to shop at regular stores and instantly try and see clothing. Thus, it led to a revenue drop from $39,000 million in 2019 to $37,000 million in 2020 (Nike, 2021, p. 4). Fortunately, ameliorating the pandemic due to the implementation of vaccination worldwide allowed Nikes revenue to bounce back and even exceed the past two years performance by more than $7,000 million (Nike, 2021, p. 4). Before discussing the firms market operations, it is essential to define some terms. Specifically, EVA is understood as the amount of wealth that the companys management could add to its shareholders within one fiscal year (Brigham & Houston, 2021). Moreover, EVA in 2019 was 9%, while in 2020, it was 8% (Nica et al., 2021). Using the firms performance presented in the report, EVA in 2021 was twice as high as in 2020.
Nikes ROA and ROE can also be determined from the presented report. ROA measures the ratio of net income to assets, which indicates how much profit was made with the current assets (Brigham & Houston, 2021). The companys ROA both in 2021 and 2022 was approximately 16% ( Nike, Inc (NYSE: NKE), 2022). On the other hand, ROE is described as the rate of return on stakeholders investments (Brigham & Houston, 2021). According to Nikes 2021 report, the return on the invested capital was almost 50%, and its ROE reached 45% (Nike, 2021, p. 4; Nike, Inc (NYSE: NKE), 2022). The difference between ROA and ROE is that the former is determined by the companys assets, while the latter depends on external finances. The financial performance of this company shows that its revenue and return on investment mainly had a dramatic increase in 2021 when COVID-19-related regulations became less stringent. This phenomenon likely occurred because people, having mental fatigue from social distancing and lockdown, started to purchase more items in physical stores. This effect may diminish soon; hence, ROE and ROA may decrease slightly in the future.
In summary, Nike, the company selected for the analysis of market operations and terms, is the leading brand in athletic clothing and footwear worldwide. The most recent report of its financial performance showed that the firms economic value added lowered by 1% during the pandemic, but it quickly ramped up in 2021. On the other hand, the 2020 economic recession does not seem to have a significant impact on the return on total assets and return on common equity. Both remained at approximately the same levels in 2019 and 2020 and increased within the last year. Overall, Nikes success seems to depend on the companys wise financial and marketing operations.
References
Brigham, E.F., & Houston, J.F. (2021). Fundamentals of financial management: Concise edition (11th ed.). Cengage Learning.
Nica, I., Chiri, N., & Ionescu, . (2021). Using of KPIs and Dashboard in the analysis of Nike companys performance management. Theoretical & Applied Economics, 28(1), 61-84.
Nike, Inc (NYSE: NKE). (2022). Stock Analysis on Net.
Nike, Inc. (2021). 2021 annual report and notice of annual meeting.
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