INTRODUCTION
NorthPoint Large-Cap Fund, from the NorthPoint Group, invests mostly in Fortune 500 companies with an emphasis on value investing. Generally it invests in old-economy stocks and it has been doing really well in the past year of 2000 (return of 20.7% even as the S&P 500 fell 10.1%). Kimi Ford, a portfolio manager at NorthPoint Group is considering buying some shares for the fund, a week before she began her research Nike Inc. decided to host an analysts’ meeting to show their 2001 fiscal results.
However this meeting had another purpose other than just providing information about their fiscal results, the meeting was also to communicate a new strategy to revitalize the company by developing more athletic-shoe products at a mid-price range. During the meeting, the company’s representatives stated that Nike’s revenues since 1997 have been around 9 billion dollars and net income had fallen in 2000, 220 million dollars. Nike´s executives believed that with this new strategy, the company would have a revenue-growth targets of 8% to 10% and earnings-growth target above 15%.
With this information provided by the company, Ford then decided to look at some reports regarding the meeting, provided by Lehman Brothers that recommended a strong buy while UBS Warburg and CSFB recommended a hold. Since she could not get any conclusive conclusions from these reports, Ford decided to ask her assistant Joanna Cohen to estimate and weight Nike´s cost of capital in order to make a better decision and get some more accurate conclusions.
ANALYSIS
In order to make a better analysis of the situation, I´m going to state some important financial factors to take into consideration and what was already being addressed by the Joanna:
Since app...
... middle of paper ...
...9 (MRP) = 10.5%
So now it is possible to calculate the WACC of Nike Inc. using both weights and costs of debt and equity:
WACC:
Weight debt x Cost Debt + Weight equity x Cost Equity
0.4682% + 9.4083% = 9.88%
With the WACC that are the rate of return required for cash flows with similar to the whole firm. Investment on Nike Inc. projects will generate positive returns of the WACC because the WACC found is positive.
CONCLUSIONS
Taking into consideration that WACC is, in my opinion the most suitable model to make a final decision, I find that the shares at a current price with a WACC are higher than 42.09% (current price of the share), Ford should invest in Nike Inc. and buy it now. Even though the share price has been declining, the determination that Nike´s management is putting into this new strategy seems to be really high and with a high probability of success.
The stock price is currently 103.31, down from a recent high of 121.50. The P/E ratio is declining at 28 and beta at .67, which is expected to grow closer to 1.0. A recent earnings surprise last December yielded a 15% difference from the lower expectations and the latest earnings reports late last month also surprised investors. Estimates for the 2000 fiscal year are being raised by a large majority of analyst who believe that earnings per share will increase and the stock price will reach close to 150.
This case is about Star River and how the firm is in the middle of financial crisis that was induced by rapid growth. The CEO basically wants to improve the financial health of the company and ask for help to make some decisions. The CEO asks one of the analyst for help in reviewing the historical performance of the firm, forecast financing requirements for the next two years, exercise the forecasting model to identify the key drivers of the assumptions, estimate Star River’s weighted-average cost of capital and lastly to analyze the proposed investment in a packaging machine.
My conclusion is that the protagonist should buy more stock of Costco Wholesale Corporation as she concluded the company is growing at manageable rate without relying on debt or equity. They are with high sales or profit, low labor costs, and consistent growth. Costco seems to be a low risk stock that is performing well with long term stability for more
The weighted average of the bond yields as given on Exhibit 11 was 5.29% . Using the book value D/E ratio and other relevant information as given on Exhibit 10, such as the risk free rate or 4.56% and the given risk premium of 5%, the WACC for the proj...
There are numerous costs of production for Nike Company which can be placed into two categories: fixed costs and variable. Fixed costs are those that remain the same for all production and variable costs change with each project. The organization’s manufacturing process, machinery, research and development costs make up the fixed costs. On the other hand, administration, distribution, labor and raw material are the variable costs. All of these are required in the organizations operation to ensure that it remains profitable. Production cost for each shoe is between $30 and $100 and they are sold at $100 to $300. Therefore, the organization stands a good chance of making a profit (Nike, Inc., 2012).
Since the pressure of the NGOs on the company has been growing, Nike developed a concept that promises to improve the monitoring of social and environmental standards for their contractors. According to Nike’s principle “Nike was founded on a handshake” , the company wants to work together and bind their business partners on the Responsibility Concept. Nike presents a symbiotic relationship of all parties based on their stated values of “trust, teamwork, honesty and mutual respect.” SHAPE stands for Safety, Health, Attitude, People and Environment and is combined with the Code of Conduct. The Responsibility Concept has been distributed to the manufactures since 1992. Nike introduced a new version of the Code of Conduct in 1997 which is oriented on the basis of human rights. According to article 23, a person has a right to work, which will remunerate him/her to such a degree that he/she will be able to live humanely.
The following content provided will include information regarding Nikes Inc. cash management strategies, which will include more in depth information from the previous group paper. In addition, working capital recommendations will be provided to senior management base on next year’s in the pro-forma financial statements.
Ford also predicted that the upcoming fiscal year would also see little increase in earnings. Because of this data, Ford Equity Research recommends investors to hold shares of Johnson and Johnson, as opposed to buying or selling shares. They also advised investors to hold onto the stock for similar companies within the medical supplies and equipment
This report is for individual or institutional investors who want to diversify their portfolio by investing in sportswear retail industry. Given the positive announcement of its high profit, it is suggested that JD sports Fashion Plc is undervalued and a final justification will be made in this report. The report will provide in-depth analysis of JD sports Plc. that includes the following content:
Nike’s Asian operations had previously continued to soar generating US$300 million in 1994 in revenues to a whopping US$1.2 billion in 1997. However based on the Asian economic crisis, this had adversely affected revenues, while regional layoffs were inevitable. Nike also performed well in the European market generating about US$2 billion in sales and a good growth momentum was expected, however, some parts of Europe were only slowly recovering from an economic downturn. In the Americas (Canada and the U.S.A.), Nike experienced a growth rate for several quarters. The U.S. alone generated approximately US$5 billion in sales. The Latin American market at this point was exposed to economic volatility; however Nike still saw them as a market with “great potential for the future”.
You would not buy a home, car or other large purchases without researching what product offered you the most for your money. The same is true when investing in a company. Investors do avid research on multiple companies to find what company matches the investors' criteria. In this paper Team C will research both AT&T and Verizon's financial documents. Team C will compare selected ratios, cash flow and make recommendations how both companies can manage cash flow for the future.
shoe industry has is getting its stock value to rise again because all but Nike
Since Ford was not sure whether to buy stocks, she asked Cohen to estimate Nike’s weighted average cost of capital.
Nevertheless, Nike is an extremely diverse company with outstanding organizational structure, impressive marketing strategy, and innovative products. The organizational structure of the Nike Corporation helped them become a leading innovator for the world with creative apparels and shoes. Their intelligent marketing strategies assist them in advertising their products to motive their customers and sell them. Their innovative product motivates customers with great performance footwear and quality designs to take on any obstacles. The Nike Corporation discovers various ways to improve their organizational structure to inspire the world.
During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task.