Financial Analysis of Nike Inc.

Financial Analysis of Nike’s Income Statement- 1995-2001

There is fluctuation in the profit margin as the company fails to maintain its profit on a consistent basis, instead the profit fluctuates. For instance, the net profit margin rises to 8.5% in 1996 and 8.7% 1997, and fell sharply to 4.2% in 1998. It later maintained a steady increase from 5.1% in 1999 to 6.4% in 2000, but fell suddenly to 6.2% in 2001. The Gross profit on the other hand also fluctuates as it increased to 2,563.9 in 1996 (39.6% increase) and 3,683.5 in 1997 (40.1 % increase). Then it fell down to 3,487.6 in 1998 and 3,283.4 in 1999 The fluctuation in profit margin especially the sharp decrease to 4.2% in 1998 calls for a big concern. This will have negative effect on investors because it will affect their ability to invest in Nike’s products. Investors does not like to invest in companies with no steady growth in their profit margin because they like to have a good return on their investment.

Also, from the income statement, we can see the inability of the company to maintain its operating income. The operating income fluctuates by increasing and decreasing over the years. For instance, it increase to 975.3 (15.1% increase) in 1996 and 1379.8 in 1997 and dropped to 863.8 – a reduction to 9.0% . Though it increased from 9.0 to 10.9 in 2000. It dropped down again to 10.7 in 2001. All these affects the growth rate of the company as seen portrayed in the income statement. The company is unable to maintain a constant growth in its revenue, operating and net income. The growth keeps rising and falling. For instance, the revenue rises from 35.9% in 1996 to 42.0% in 1997 and fall down to 4.0 in 1998 and an extreme fall of -8.1% in 1999. This will spell bad omen for the company by increasing labor turnover because employees tends to leave companies with no sustainable growth and profitability. Such companies will not give room for promotion and career...