Capital Structure Essay Sample

My company pick is Nike Inc. ( Nike ) . a transnational athleticss footwear. equipment and dress fabrication company based in Oregon. United States. This puts Nike in the dress industry. In 2010. Forbes rated Nike as the top athleticss concern with a entire value of $ 10. 7 billion.

The most effectual selling scheme Nike employ is the sponsorship understandings they have with legion top jocks in a assortment of athleticss.

Operating Risks of Nike

When Nike was ab initio started out. the purpose was to better the societal. labour and environmental impacts the concern has. motivated by the demand to pull off hazards. However they have besides incorporated invention to assist do Nike a more sustainable concern that involves the people. planet and net income in order to guarantee long permanent success.

One of the major operating hazards is the demand to continuously maintain in touch with the ever-evolving athleticss universe. every bit good as the demand of consumers who are invariably demanding new merchandises and services.

Fiscal Risks of Nike

The strong indicant of a company’s fiscal hazards is the debt to entire capitalisation ratio. This ratio measures the part of a company’s entire capital construction that is financed by debts.

The ratio is calculated as:

Harmonizing to the balance sheet dated May 31. 2014. Nike had a entire debt of $ 1. 373 billion. and entire shareholders’ equity of $ 10. 824 billion. Calculating these Numberss gives a debt to entire capital ratio of 11. 26 % .

The balance sheet of Nike shows that there is no preferable stock offered by the company but their common stock figure bases at 3 million. Besides. because there are no preferable stocks. it is impossible to cipher the cost of this type of stocks.

Capital Structure of Nike

This subdivision gives a brief analysis of Nike’s capital construction. As stated earlier. Nike has a debt to capitalization ratio of 11. 26 % ; intending merely 11. 26 % of Nike was been financed externally as of May 31. 2014. This shows Nike is a low hazard company for both its proprietors and investors. Nike presently has short-run debt of $ 174 million and long term debt of $ 1. 199 billion.

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Nike portions are traded on the New York Stock Exchange ( NYSE ) market. As at 4:00PM EDT on September 19. 2014. Nike’s common portions were merchandising for $ 81. 81. a $ 0. 16 alteration in monetary value during the twenty-four hours. but after hours activities saw the monetary value bead a farther $ 0. 19 to $ 81. 62.

The Beta is a measuring of the volatility and fluctuation of a company’s stock relation to the market. Give the market beta of 1. 0. if a company has beta greater than 1. 0 it means the company’s stocks are more volatile than the market. doing the company riskier but they besides pay higher returns. On the other manus. beta lower than 1. 0 indicates less volatility than the market. doing them less hazardous but besides paying investors lower return.

NASDAQ and Yahoo Finance both study different beta figures for Nike. Harmonizing to NASDAQ. Nike has a beta of 1. 12. while Yahoo Finance reports the beta as 0. 72. Since Yahoo Finance uses figures from the NYSE ( the market Nike trades in ) . that is the beta figure to utilize. This figure indicates Nike is less hazardous than the market. but returns are lower than market rate.

Cost of Equity

The cost of equity of a company is the numerical indicant of the return the shareholders demand for their investing in the company. The most popular manner of ciphering the cost of equity is utilizing the dividend capitalisation theoretical account. The expression for this method is: ( Following Year’s Annual Dividend / Current Stock Price ) + Dividend Growth rate

Morningstar reports the one-year dividend collectible on October 6. 2014 as $ 0. 24 per portion. while a twelvemonth earlier on October 4. 2013 the current stock monetary value closed at $ 72. 14. Harmonizing to NASDAQ. between October 7. 2013 and October 6. 2014 the dividend increased from $ 0. 21 to $ 0. 24 per portion. a 14. 28 % addition. Puting these figures together. the Cost of equity of Nike Inc. as of October 2013 was 14. 61 % .

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Cash Dividend Yield

The dividend output is a ratio that measures the sum of hard currency generated for each dollar invested by the stockholders. The higher this ratio. the higher the sum of dividend that a stockholder earns for each dollar invested. doing it more alluring to gain trailing investors.

YCharts plots a graph demoing the alteration in the dividend output based on the alteration in portion monetary value on a day-to-day footing. On September 19. 2014 the output of Nike Inc. was at 1. 17 % .

Stock History of Nike

In the old 5 old ages. Nike has enjoyed uninterrupted success as it has experienced a steady rise in stock monetary values ( except for little period of portion monetary value bead ) . get downing at $ 29. 32 on September 21. 2009 to its current highest point of $ 81. 81 on September 20. 2014.

Analysis and Investment Decisions

Taking a expression at the entire capital construction of Nike. every bit good as its operating and fiscal hazards. Nike seems to be in a good place. With a comparatively low debt to capitalization ratio of 11. 26 % . Nike are to a great extent internally financed by stockholders. so they are non runing at a high hazard in footings of holding adequate resources to cover their debts. both short-run and long-run.

Looking at the balance sheet of Nike over the last three old ages. although hard currency and hard currency equivalent have been volatile and fluctuating annually. the entire assets have been increasing. to fit the increasing entire liabilities owed by Nike.

The ever-evolving market. along with the economic. societal and political factors that affect concern public presentations. invariably threatens Nike. like any other company.

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In decision. it can be concluded that Nike is a comparatively low hazard company. This is backed up by the beta figure of 0. 72 that indicates Nike is less hazardous than the market but besides with a low return rate. as indicated by the low dividend output figure.

The determination to put in Nike would be dependent on the purposes of the stockholders and other investors. As stated earlier. Nike is a low hazard company with low return rates. bespeaking it will be unsuitable for profit-motivated investors. It is declarative that Nike is more concerned about sustainability and uninterrupted growing.


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_split_page & A ; t=NKE Retrieved September 20. 2014 6. Nike Inc. hypertext transfer protocol: //investors. nikeinc. com/Investors/Stock-Information/Historical-Price-Lookup/default. aspx Retrieved September 20. 2104 7. NASDAQ. Nike Inc. Dividend Date & A ; History. hypertext transfer protocol: //www. National Association of Securities Dealers Automated Quotations. com/symbol/nke/dividend-history Retrieved September 20. 2014 8. YCharts. Nike Inc. hypertext transfer protocol: //ycharts. com/companies/NKE/dividend_yield Retrieved September 20. 2014 9. Yokel Finance. Nike Inc. hypertext transfer protocol: //finance. yokel. com/echarts? s=NKE+Interactive Retrieved September 20. 2014