assignments - mafr

Click here to load reader

Post on 15-Oct-2014




1 download

Embed Size (px)


MASTER OF BUSINESS ADMINISTRATION AWARDED BY NOTTINGHAM TRENT UNIVERSITY ASSIGNMENT SUBMISSION FORMNote: Students must attach this page to the front of the assignment before uploading to WECSERF. For uploading instructions please see the help file online

Name of Student: Vijay Subramaniam Student Registration Number: KL519

Module Name: Managing & Accounting for Financial Resources Module Number: WEC - T12012 Assignment Title: : Managing & Accounting for Financial Resources Submission Due Date: 12February 2012 Students Electronic Signature: Vijay Subramaniam

Plagiarism is to be treated seriously. Students caught plagiarizing, can be expelled from the programme

Assignment Form MBA Jan12

Table of Contents 1.0 Executive Summary 2.0 Introduction 3.0 Background of the Company 4.0 Definitions of Terms 5.0 Management and control of the working capital 5.1 Working Capital Strategies 5.2 Debt Structure 5.3 Equity Structure 5.4 Stocks 5.5 Bonds 6.0 Working capital policies that adopted by Nike 6.1 Design for Environment 6.2 Nike stated four long-term goals. By 2020 6.3 NikeGO Places 6.4 Climate Commitments 7.0 NIKE Historical Ratios 8.0 Key Working Capital Ratios 9.0 Weaknesses in the management of working capital NIKE 10. 0 Working Capital Cash Conversion Cycle of NIKE 11.0 Conclusion 12.0 Reference 19 28 20 31 32 34 35 37 38 39 16 - 18 2-3 45 67 8 - 11 12 - 15


1.0 Executive Summary Nikes company strategy is a clever one. One that founder Phil Knight thought of while still in school at Stanford. Instead of paying Americans to put together Nikes shoes, Knight thought that it would be a better idea to take manufacturing plants overseas to places where labor is much cheaper than in the U.S., places like Taiwan and South Korea. With 86% of its products being produced in one of those two countries and Nike employing a large number of people who lived there, the countries became richer and richer until Knight decided prices were too high to manufacture there anymore.

He decided to move the factories to places in China like Indonesia where countries were practically begging for foreign investment. Production was going well until the early 1990s when labor strikes rose to 112 in 1991 and news began to leak out about the terrible conditions Nikes labor force was working in. The company was using underage workers and underpaying them to the point that a family couldnt even survive off of the wages made at a Nike factory. From this point, Nikes sales began to slip and returned into the medias spotlight numerous times in the 90s for their bad labor practices.

Nike paints a picture of their company for the world to see their, inspiration and innovation, as well as their commitment to serve everyone in the world. Through a continuous effort by Nike to remain at the apex of technology and innovation, they are the market leader by a significant margin. As a result of Nike pursuit of selling a broad spectrum of products, they possess a formidable competitive advantage.


Nike exhibits significant strength in market share, brand image and recognition, as well as research and development. Through the use of intuition and analysis I have concluded that opportunities exist for Nike to increase market share. Specifically, I recommend horizontal integration, global expansion, European concentration, and segmented marketing to target various generational demographical opportunities. The focus will lie using various methods of segmentation to develop the targeted markets and increase market share.

This company strives for excellence. Nike is an enormous corporation that continues to do well, even in this questionable economy. They are relentless about innovating to reach their full potential. Despite a few highs and lows within the company they continue to produce high quality sport-inspired equipment.


2.0 Introduction Working capital management is a very important component of corporate finance because it directly affects the liquidity and profitability of the company. It deals with current assets and current liabilities. Working capital management is important due to many reasons. For one thing, the current assets of a typical manufacturing firm accounts for over half of its total assets. For a distribution company, they account for even more. Excessive levels of current assets can easily result in a firms realizing a substandard return on investment. However firms with too few current assets may incur shortages and difficulties in maintaining smooth operations (Horne and Wachowicz, 2000).

Efficient working capital management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short term obligations on the one hand and avoid excessive investment in these assets on the other hand (Eljelly, 2004). Many surveys have indicated that managers spend considerable time on day-to-day problems that involve working capital decisions. One reason for this is that current assets are short-lived investments that are continually being converted into other asset types (Rao 1989). With regard to current liabilities, the firm is responsible for paying these obligations on a timely basis. Liquidity for the ongoing firm is not reliant on the liquidation value of its assets, but rather on the operating cash flows generated by those assets (Soenen, 1993). Taken together, decisions on the level of different working capital components become frequent, repetitive, and time consuming.


Working Capital Management is a very sensitive area in the field of financial management (Joshi, 1994). It involves the decision of the amount and composition of current assets and the financing of these assets. Current assets include all those assets that in the normal course of business return to the form of cash within a short period oftime, ordinarily within a year and such temporary investment as may be readily converted into cash upon need. The Working Capital Management of a firm in part affects its profitability.


3.0 Background of the Company Bill Bowerman and Phil Knight founded Nike Inc. as Blue Ribbon Sports in 1962. The partners began their relationship at the University of Oregon where Bowerman was Knights track and field coach. While attending Stanford University, Knight wrote a paper about breaking the German dominance of the U.S. athletic shoe industry with low-priced Japanese shoes. In an attempt to realize his theory, Knight visited Japan and engineered an agreement with the Onitsuka Tiger company, a manufacturer of quality athletic shoes, to be their sole distributor in the United States.

In 1962, Knight received the first shipment of 200 pairs of Tiger shoes to his parents garage in Oregon. The shoes were bought by Blue Ribbon Sports (BRS), the name of the partnership between Knight and Bowerman that they formed with only $1,000 in capital. Knight peddled Tigers shoes at local track meets grossing $8,000 of sales in their first year. In 1966, Bowerman, who had previously designed shoes for his university athletes, worked with Tiger to design the Cortez running shoe. The shoe was a worldwide success for the Onitsuka Tiger Company and was sold at the first BRS store. In 1971, BRS, with creditor support, started manufacturing their own line of shoes. Later that year, the first BRS shoe was introduced. The shoe was a soccer shoe that bore the Nike brand name, referring to the Greek Goddess of Victory, and the Swoosh trademark. A student designed the Swoosh trademark for a paltry fee of $35. The Swoosh was meant to symbolize a wing of the Greek Goddess.

1972 marked the breakup of the BRS/Tiger relationship. BRS soon changed its name to Nike, Inc. and debuted itself at the 1972 Olympic trials. In 1973, Steve Prefontaine was the first prominent track star to wear Nike shoes. The late 70s and


early 80s also saw John McEnroe, Carl Lewis, and Joan Benoit sporting Nike shoes. Nike popularity grew so much that in 1979 they claimed 50% of the U.S. running market. A year later with 2,700 employees, Nike went public selling 2 million shares on the New York Stock Exchange.

The 1980s were marked by the signing of Michael Jordan as a product spokesperson, revenues in excess of $1 billion, the formation of Nike International Ltd., and the "Just Do It" campaign. Nike also expanded its product line to include specialty apparel for a variety of sports. In 1990, Nike surpassed the $2 billion mark in consolidated revenue with 5,300 employees worldwide. In addition, we opened the Nike World Campus in Beaverton, Oregon.

In 1991, Nike pushed revenues to $3 billion, up from $2 billion the prior year. This mark would continue to grow throughout the 90s, with revenues in 1999 reaching $8.8 billion. These revenues grew based on improvements in shoe technology and successful marketing campaigns. International revenues fueled a great portion of this growth with an 80% increase in 1991 from the prior year. In 1992 international revenues topped $1 billion for the first time and accounted for over onethird of our total revenues. Such growth continued throughout the 1990's as we continued to focus our marketing efforts on major sporting events like the World Cup, and the next generation of celebrity endorsers, such as Tiger Woods, Lance Armstrong, and the players of women's professional basketball (WNBA). At the end of the 90s, Nikes goal, as stated in our company web site, is to become a truly global brand.


4.0 Definitions of Terms Before beginning the glossary of financial terms and definitions, let me first define the scope of this glossary. Finance is a broad superset of many sub topics, namely accounting, banking, business, credit, insurance, stocks, etc. As it was impossible to r