Nike Case Study - 1542 Words

INTRODUCTION †¢ Kimi Ford, a portfolio manager of a large mutual fund management firm, is looking into the viability of investing in the stocks of Nike for the fund that she manages. †¢ Ford should base her decision on data on the company which were disclosed in the 2001 fiscal reports. While Nike management addressed several issues that are causing the decrease in market sales and prices of stocks, management presented its plans to improve and perform better. †¢ Third party sources also gave their opinions on whether the stock was a sound investment. WACC CALCULATION: Cost of Capital Calculations: Nike Inc Cohen calculated a weighted average cost of capital (WACC) of 8.3 percent by using the capital asset pricing model (CAPM) for†¦show more content†¦using the weights and costs of debt and equity. The formula used is: WACC = wdkd (1-T) + weke. WACC = Wd*Kd(1-T) + WeKe = 10.05%*7.51 %( 1-38%) + 89.95%*10.46% = 0.4682% + 9.4087% = 9.8767% The weighted average cost of capital for Nike Inc. is 9.8765 percent. The next model used to calculate the cost of capital is the dividend discount model. Dividend Discount Model. The assumption made with this model is that the company pays a substantial dividend, but Nike Inc. does not. Therefore, we rejected this model because it does not reflect the true cost of capital. The calculation is as follows: DDM = [Do(1+g)/Po] + g =[0.48(1+.055)/42.09] + .055 = 6.70% Earnings Capitalization Model: The final model used to compute the cost of capital was the earning capitalization model. The problem with this model is that it does not take into consideration the growth of the company. Therefore we chose to reject this calculation. The earnings capitalization model calculations were found this way: ECM = E1/Po = 232/42.09 = 5.51% Financial performance appraisal: Ratio Analysis Profitability ratios Liquidity Ratios: These ratios measure the liquidity position of the firm in question i.e its ability to meet short term obligations with short term assets. Current Asset Ratio = Current Assets/Current liabilities 2000 Current Ratio = 3596.4/2140 = 1.6 times 2001 Current Ratio = 3625.3/1786.7 = 2.03times Acid test ratioShow MoreRelatedNike Case Study1004 Words   |  5 PagesRSS Case Study: E-recruitment gets Nike on track Posted by HR Zone in Strategies on Thu, 09/12/2004 - 16:54 0 inShare The Nike employer brand is extremely powerful in attracting potential talent to the business making the process of handling applications and supporting the resourcing process effectively and efficiently critical to business success; implementing e-recruitment was identified as the way to solve this businesses hiring problems. 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