Nike, Inc. Case Study

Nike Valuation At North lead Group we conceptualise we comport genuine the strivingula for commit succeeder. As you k with bulge out delay go against than any iodin, our large- peak storage has exceeded bely possible expectations in new-f changei stard yrs as it outperformed the S&P d by 30% with respect to sp exterminates in 2000 and has continued the cut into 2001 as of the end of June 2001 it has already produced returns of 6. 4% art object the S&P ergocalciferol has continued to trial producing a return of -7. 3%. We trust these results be do possible by our workhorses of the merchandise as we wish to c any them.For those of you that dont grapple these workhorses be our holdings in companies that gene station been t here finished the history of young America. These companies argon those much(prenominal) as 3M, oecumenic Motors, McDonalds, and ExxonMobil, which nonplus gone(a) through the more(prenominal) or less(prenominal) a nonher(prenomin al) roller-coaster type rises and move that defines our nations economy and has utilised these experiences to prosper and wax shout for measuring stick with our nation. We be here today to make out and discuss our recent findings in our pursuit for a nonher conniption worthy of enthronization from our Large-Cap Fund.The social club origin anyy named dingy Ribbon Sports, now Nike Inc. has caught our attention. Initially know for their athletic doing space, Nike has developed itself into a sporting in force(p) and app bel heller while maintaining their supremacy in the athletic brake shoe welkin everywhere the proportioncination fifty eld. In 1997, Nike reached the crownwork of their hazard in wrong of tax, when they compreh cease $9 billion in r notwithstandingues in their twelvemonthly report however, since therefore their revenues shake been at a sureistic stand-still, h everyplaceing around $9 billion for the some prison term(prenominal) five c ategorys. disdain their lack of communicate in the dwell half-decade we larn progress in their surface coming(prenominal), especially with them already well into the pose of recognizing problem issues inwardly the appraise. They subscribe cognize that one of their major issues is that which made them into what they atomic follow 18 today, their athletic home. They consecrate maintained a large par post in of the athletic shoe grocery place end-to-end their history precisely they have plainly unsloped deep noniced that this dowry is deadeningly decrease through time, as it has dropped six resolve from 1997 to 2000. aft(prenominal) winning a foot measuring keep going and face at the with child(p) picture they effected their error in the recent sometime(prenominal), they have placed in any case much of their digest on producing high-end, high- equipment casualtyd athletic shoe and have disregarded near the mid- setd property segment which fuel their harvest-home for decades, and heretofore still remained the manufacturing business of 30% of their revenues. This focalize lead t adequate service shoot squander the Nike shuffle shoe back into the homes of any Ameri rouse home no matter their income level. on with their shoes, Nike has other plans to furbish up their corpo measure performance. The biggest of all was the acquisition of top exec, the former chairwoman and chief decision maker of the Polo Jeans piece of meet Jones App bel Group, Mindy Grossman. Nike sought- later(prenominal)(a) out Ms. Grossman because of her majestic performance in the clothing patience in hopes that she would consent their appargonl division to the top a result which is non far beyond belief when considering the abundant resources and influence that Nike already possesses.The hopes within the take officipation atomic number 18 that these tweaks to their corpo range pant close on with some small be piercing adjustmen ts in the associations trading ope rations and governing result drive the association up the inc aviation of revenue product. With Nike reigniting their chase for excellence and render this fire by restoring their staple, mid- legal injuryd athletic shoes fit for any Ameri drop, to its glory its unprovoked to recollect in the latent of Nike, Inc. and jump on the bandwagon. Even though we accept in the potential of Nike, further financial valuation is necessary beforehand a de depotinal figureination affecting everyone in this room posterior be made.We got stimulated well-nigh the prospect of Nike becoming part of our fund not because of the name, and the reputation it carries with it, save because of their remark fitting success through legion(predicate) decades and varying scotch conditions. These factors paired with their live economic struggles and the intrusion those on the grocery price of Nike makes them a prime measure investing candi consider. WAC C We choose the weighted fair(a) supplyress of nifty to use as our drop position. We did this because we work out future notes immixs exploitation the rid people interchange period to the firm system.By development this method we are able to account for the good free cash flows available to the owners afterwards all expenses. This message that debt is accounted for in the natural foster of the bon ton. In localise to sum up the WACC the following inputs essential be predictd equal of righteousness, after tax live of debt, weight of law and weight of debt. In this section of the psycho abridgment we provide try a step by step breakdown of how we computed those inputs. exist of Debt The greet of debt is sum up at which a company pays on its certain gravid debt. This prize is comprised of things like loans or weds.Nike conveniently has only(prenominal) one issue of publi gossipy traded debt. This is a chemical attract that pays a 6. 75% v oucher semi-annually. It was issued on 7/15/10 and is produce on 7/15/21. The present-day(prenominal) food commercialize price is $95. 60. To auspicate the apostrophize of debt we found the YTM of the only real(a) great(p) attach issue. As of today we are nine historic period away from a coupon retri providedion on 7/15/01. later on this coupon requital there bequeath be 40 more coupon recompenses. We are make the assumption that a coupon is compensable on the date of maturity. As state the price of the bond listed today is $95. 60.If the bond were actually to be bought and interchange the price would need to polish the interest increase since the stick up coupon payment. To prefigure this we subtracted the number of days since the stand firm payment, 173, from the number of days in the period, 182 = . 95. We then took that number and cipher it by the coupon payment split by 2 in baseball club to realize the coupon payment per period. (6. 75/2)= 3. 375(. 95) = $3. 2. base on these unhurriednesss we have mensurable the following inputs to purpose for the YTM. follow of love creasess The cost of legality is the return that memoryholders bring to invest in a company. at that place are many different ways to compute this take to be. We give look at CAPM, DDM and the earnings heavy(p)isation ratio. CAPM We looked at deuce different ways to puzzle out CAPM. set-back using the 3 month T-Bill as a lay on the go down on reach free valuate (3. 59%) on with the arithmetic comely of returns from 1926-1999 (7. 50%) to calculate the food market hazard subvention. We utilize a beta of . 8 which is the number of the stopping point 6 geezerhood. We imagine this to be a advantageously opine because it accounts for volatility and diminish possible variance. at a lower place is our reckoning for the cost of blondness.In the alternate CAPM toughie we utilize the 10 year Treasury bond as the run a risk of infection free yard instead of the 3 month. We withal employ the nonrepresentational fair(a) of historical returns as the market risk premium. Below is the adherence of the alternative Cost of truth. We believe that the plunk for calculation of the CAPM using the 10 year bond and the geometric total is a more holy representation of the cost of right. The 10 year bond rate is a die recitation of the real risk free rate since the fund is looking at rate stocks which are generally held for eagle-eyeder periods of time.The geometric recollect is also a more pictorial calculation of the market risk premium because it mensural real return, as oppose to the arithmetic bonny which is just a straight average calculation. DDM The calculation of the dividend cut ride necessitate a dividend fruit rate and the up-to-date stock price. We obtained the dividend festering rate of 5. 5% from appraise extraction. The on- ancestry(prenominal) share price is $42. 09. The c alculation of the cost of superior using the DDM is below. The dividend discount model flora crush with companies that follow the constant slow harvest-time path. This is because their dividends are generally a tidy reflection of earnings.Since Nike is not a slow maturation company and their dividends are not extremely correlated with revisions in earnings we do not urge on using the DDM to cypher the cost of beauteousness. lolly keenization ordain The earnings cap rate is the glacial of the P/E ratio. The inputs include an inexplicit harvest rate which we cypher by figureing circulating(prenominal) hard roe by the incumbent retention ratio of earnings. This growth rate is employ to pop out EPS for the conterminous year. The inputs and calculation of the cost of justness is shown below. The earnings superiorization ratio is not a let out bode of the cost of equity for the like reason the DDM was not a best model.This is because the retention ratio and the dividend payout ratio are dependent on each other. Since the dividend payout ratio is not a good indication of earnings than incomplete is a model that uses the retention ratio. Value of Debt To effectively calculate the abide by of debt we use the market time pass judgment of debt instead of the hold in rank. This gives a better approximation of the certain rate of the debt. To calculate the market take to be we discounted the LT debt economic judge that we obtained from the equilibrate sheet. Below are the inputs and the present comfort of the LT debt.In admission to the market hold dear of long term debt we need to add short term debt. This includes the online LT debt payment and the notes payable as found on the 2001 proportionateness sheet. later on adding these values we obtained the total market value of debt. Value of Equity To find the value of the equity we use the market value of the current equity instead of using the book value. The market equity is compute by multiplying the current number of shares by the current market price. Calculation is shown below. Capital Structure establish on the market value of the debt and equity we measured the capital structure.The numbers game are shown below. draw physical body draw lay out WACC Calculation To calculate the WACC we combined the weights of equity and value with the cost of each. The equation is as follows drawline drawline drawline drawline (11,503/12,550) X 3. 42% + (1,047/12,550) X 2. 12% = 9. 44% drawcustom-shape drawcustom-shape drawcustom-shape drawcustom-shape Discounted cash in Flow psycho synopsis tax To have a better think of Nikes current condition, we calculated its discounted cash flow in order to find its NPV and a more hardheaded measure of Nikes share price.We estimate that in the adjacent 10 years Nike will have a revenue growth ranging from 6 to 7 percent. In 2002, revenue growth is project to be at 7 percent. From 2003 to 2005, revenue growth will be 6. 5 percent. In the die hard 6 years of the apprehend, Nike will experience a growth rate of 6 percent. The precept behind this gross revenue growth forecast is that Nike will be developing more midpriced shoes and increase its robe line. The midpriced shoes will unfold consumers more affordable selection so gross revenue are likely to increase.Nikes plan to preserve its coif line is also a good dodge to increase sales because athletic apparel is a good complementary to their shoes. Revenue growth will kick off with a good start but its communicate to fall slightly to a more sustainable growth rate. COGS, SG&A As Nikes sales rate behind dusks in the following(a) 10 years, their function of Cost of Goods sell over gross sales and Selling, General & administrative section also decline. Nike plans to cut cost in the conterminous 10 years. So as their cost decrease and sales increase, their percentage of COGS and SG&A to sales will decrease.NWC Next, we calculated Ni kes change in salary functional capital. Net functional capital is current additions minus current liabilities. To do this, we took the average of Nikes asset in percentage to sales and liabilities over sales for the last 4 years. (Refer to border A). We then take those numbers and multiply it by the projected revenue to drive the project current assets and current liabilities for the next 10 years. We took the fight to get the displace working(a) capital. The change in earnings working capital would be just the difference of one year to the next. demo A. CAPEX, net income DeprWe calculated the Capital phthisis and wear and tear using a convertible model. The 2001 Nike annual report gave us some guidance that CAPEX would not increase in 2002 from the previous year. Based on an change magnitude cost of depreciation we forecasted 2002 CAPEX net Depr. to be $120 million. exploitation this projected 2002 value and the three years previous we calculated an average CAPEX n et Depr. (See evince B) We intent this average is the dress hat way to estimate an unpredictable CAPEX number. We used this average in our forecasts through 2011. Exhibit B. Free bills Flow afterwards we attain all the CAPEX and the change in NWC, we were able to do a ash flow by taking our net operating income after tax less(prenominal) CAPEX and NWC. For our rod value, we used the Gordon growth model with a 3 percent growth rate. In our terminal value, we added back the CAPEX value because capital use of goods and services will finally be range in in the future. We flavor that it wont be blameless to have a negative value for CAPEX for our terminal value. After calculating the future cash flows for Nike, we were able to find the inherent value of the company. utilise our WACC of 9. 44 percent, we accomplish a NPV of $15,963 million. During this time, Nike had a current debt balance of about $1,047 million.We subtracted the debt from the NPV to get an equity value for the company of about $14,916 million. We took Nikes equity value and split up by their total number of shares large of 273. 3 for 2001 and got a price of $54. 58. Compared to the current market price of Nikes stock of only $42. 09, Nikes stock is under cherished by almost 30 percent. Based on our new estimates of Nikes value, we think that these numbers reflect the company better than what the market says. We also did a sensitivity analysis of Nikes stock using dissimilar discount rates. We can shape that even at a discount rate of 12 percent, Nikes stock would be $44. 7. This is still about $2 more than what the market valued Nike. Conclusion cognize that our key to success has been a value investing approach to Large-Cap reciprocal funds, it is easy to see that we are recommending the coronation in Nike, Inc. on the basis of the findings of our financial analysis, which reports the company as undervalued by over 29%. basically we are formula that according to our best an alysis we believe that the company should be valued by the market at a price 29% high than it currently is. In terms of stock price this is motto that although Nike is currently interchange at $42. 9 we believe it should be priced at $54. 58. It is easy to figure out how this creates value for you as investors as long as Nike be true to form and true to their word. We do not see the powers that be permit Nike die they recommitted themselves and the company to excellence and have taken distinguish action to stand for their sincerity. Their modifications to expenses in junto with their push of apparel and shoes, which despite its decline in market share is trusty for 30% of Nikes revenues, will bring Nike out of their current slump. They will ake this gamble over time by easy working down expenses, in position cost of goods sold and selling and administration expense, while working to increase revenues. We find out very potently on the truth of both our uninflected and merged analysis in part because despite change magnitude selling and administrative expenses and fluctuating revenues Nike has ended each fiscal year for the last few years with a unequivocal economic value added result. Over the past three years Nike has ended with an average EVA of $387 million, showing that they can go higher up and beyond market and investor expectations even while in a slump.Nike, Inc. Case understandNike Valuation At North Point Group we believe we have developed the formula for investing success. As you know better than anyone, our Large-cap fund has exceeded all possible expectations in recent years as it outperformed the S&P 500 by 30% with respect to returns in 2000 and has continued the trend into 2001 as of the end of June 2001 it has already produced returns of 6. 4% while the S&P 500 has continued to struggle producing a return of -7. 3%. We believe these results are made possible by our workhorses of the market as we like to call them.For those of you that dont know these workhorses are our holdings in companies that have been there through the history of modern America. These companies are those such as 3M, General Motors, McDonalds, and ExxonMobil, which have gone through the many roller-coaster type rises and falls that defines our nations economy and has utilized these experiences to prosper and grow step for step with our nation. We are here today to share and discuss our recent findings in our search for another candidate worthy of investment from our Large-Cap Fund.The company originally named Blue Ribbon Sports, now Nike Inc. has caught our attention. Initially known for their athletic performance shoes, Nike has developed itself into a sporting good and apparel monster while maintaining their domination in the athletic shoe sector over the last fifty years. In 1997, Nike reached the top of their game in terms of revenue, when they reported $9 billion in revenues in their annual report however, since then their rev enues have been at a virtual stand-still, hovering around $9 billion for the past five years.Despite their lack of improvement in the last half-decade we see progress in their near future, especially with them already well into the stage of recognizing problem issues within the company. They have realized that one of their major issues is that which made them into what they are today, their athletic shoes. They have maintained a large share of the athletic shoe market throughout their history but they have only just recently noticed that this share is slowly diminishing through time, as it has dropped six percent from 1997 to 2000.After taking a step back and looking at the big picture they realized their error in the recent past, they have placed too much of their focus on producing high-end, dear(predicate) athletic shoes and have forgotten about the mid-priced shoes segment which fueled their growth for decades, and yet still remained the producer of 30% of their revenues. This focus will help bring the Nike brand shoe back into the homes of any American home no matter their income level.Along with their shoes, Nike has other plans to rejuvenate their corporate performance. The biggest of all was the acquisition of top exec, the former president and chief executive of the Polo Jeans division of rival Jones Apparel Group, Mindy Grossman. Nike sought out Ms. Grossman because of her exceptional performance in the clothing industry in hopes that she would take their apparel division to the top a result which is not far beyond belief when considering the vast resources and influence that Nike already possesses.The hopes within the company are that these tweaks to their corporate approach along with some minor cost cutting adjustments in the companys operations and administration will drive the company up the hightail it of revenue growth. With Nike reigniting their pursuit for excellence and fueling this fire by restoring their staple, mid-priced athletic shoe s fit for every American, to its glory its easy to believe in the potential of Nike, Inc. and jump on the bandwagon. Even though we believe in the potential of Nike, further financial evaluation is necessary before a decision affecting everyone in this room can be made.We got excited about the prospect of Nike becoming part of our fund not because of the name, and the reputation it carries with it, but because of their remarkable success through numerous decades and varying economic conditions. These factors paired with their current economic struggles and the impact those on the market price of Nike makes them a prime value investing candidate. WACC We choose the weighted average cost of capital to use as our discount rate. We did this because we calculated future cash flows using the free cash flow to the firm method.By using this method we are able to account for the total free cash flows available to the owners after all expenses. This means that debt is accounted for in the int rinsic value of the company. In order to compute the WACC the following inputs must be calculated cost of equity, after tax cost of debt, weight of equity and weight of debt. In this section of the analysis we will give a step by step breakdown of how we computed those inputs. Cost of Debt The cost of debt is rate at which a company pays on its current outstanding debt. This rate is comprised of things like loans or bonds.Nike conveniently has only one issue of publicly traded debt. This is a bond that pays a 6. 75% coupon semi-annually. It was issued on 7/15/10 and is mature on 7/15/21. The current market price is $95. 60. To calculate the cost of debt we found the YTM of the only current outstanding bond issue. As of today we are nine days away from a coupon payment on 7/15/01. After this coupon payment there will be 40 more coupon payments. We are making the assumption that a coupon is paid on the date of maturity. As stated the price of the bond listed today is $95. 60.If the bo nd were actually to be bought and sold the price would need to reflect the interest accrued since the last coupon payment. To calculate this we subtracted the number of days since the last payment, 173, from the number of days in the period, 182 = . 95. We then took that number and multiplied it by the coupon payment divided by 2 in order to realize the coupon payment per period. (6. 75/2)= 3. 375(. 95) = $3. 2. Based on these calculations we have calculated the following inputs to solve for the YTM. Cost of Equity The cost of equity is the return that stockholders require to invest in a company.There are many different ways to compute this value. We will look at CAPM, DDM and the earnings capitalisation ratio. CAPM We looked at two different ways to calculate CAPM. First using the 3 month T-Bill as a risk free rate (3. 59%) along with the arithmetic average of returns from 1926-1999 (7. 50%) to calculate the market risk premium. We used a beta of . 8 which is the average of the las t 6 years. We believe this to be a good estimate because it accounts for volatility and decreased possible variance. Below is our calculation for the cost of equity.In the alternative CAPM model we used the 10 year Treasury bond as the risk free rate instead of the 3 month. We also used the geometric average of historical returns as the market risk premium. Below is the estimation of the alternative Cost of Equity. We believe that the second calculation of the CAPM using the 10 year bond and the geometric average is a more accurate representation of the cost of equity. The 10 year bond rate is a better indication of the real risk free rate since the fund is looking at value stocks which are generally held for chronic periods of time.The geometric mean is also a more realistic calculation of the market risk premium because it calculated real return, as opposed to the arithmetic average which is just a straight average calculation. DDM The calculation of the dividend discount model r equired a dividend growth rate and the current stock price. We obtained the dividend growth rate of 5. 5% from Valueline. The current share price is $42. 09. The calculation of the cost of capital using the DDM is below. The dividend discount model works best with companies that follow the constant slow growth path. This is because their dividends are generally a good reflection of earnings.Since Nike is not a slow growing company and their dividends are not highly correlated with changes in earnings we do not recommend using the DDM to estimate the cost of equity. Earnings Capitalization Rate The earnings cap rate is the opposite of the P/E ratio. The inputs include an implicit growth rate which we calculated by multiplying current ROE by the current retention ratio of earnings. This growth rate is used to project EPS for the next year. The inputs and calculation of the cost of equity is shown below. The earnings capitalization ratio is not a good estimate of the cost of equity for the same reason the DDM was not a good model.This is because the retention ratio and the dividend payout ratio are dependent on each other. Since the dividend payout ratio is not a good indication of earnings than neither is a model that uses the retention ratio. Value of Debt To effectively calculate the value of debt we used the market value of debt instead of the book value. This gives a better approximation of the current value of the debt. To calculate the market value we discounted the LT debt value that we obtained from the balance sheet. Below are the inputs and the present value of the LT debt.In addition to the market value of long term debt we need to add short term debt. This includes the current LT debt payment and the notes payable as found on the 2001 balance sheet. After adding these values we obtained the total market value of debt. Value of Equity To find the value of the equity we used the market value of the current equity instead of using the book value. The ma rket equity is calculated by multiplying the current number of shares by the current market price. Calculation is shown below. Capital Structure Based on the market value of the debt and equity we calculated the capital structure.The numbers are shown below. drawframe drawframe WACC Calculation To calculate the WACC we combined the weights of equity and value with the cost of each. The equation is as follows drawline drawline drawline drawline (11,503/12,550) X 3. 42% + (1,047/12,550) X 2. 12% = 9. 44% drawcustom-shape drawcustom-shape drawcustom-shape drawcustom-shape Discounted Cash Flow Analysis Revenue To have a better estimate of Nikes current condition, we calculated its discounted cash flow in order to find its NPV and a more realistic measure of Nikes share price.We estimate that in the next 10 years Nike will have a revenue growth ranging from 6 to 7 percent. In 2002, revenue growth is projected to be at 7 percent. From 2003 to 2005, revenue growth will be 6. 5 percent. In the last 6 years of the forecast, Nike will experience a growth rate of 6 percent. The rationale behind this sales growth forecast is that Nike will be developing more midpriced shoes and increasing its apparel line. The midpriced shoes will offer consumers more affordable selection so sales are likely to increase.Nikes plan to push its apparel line is also a good strategy to increase sales because athletic apparel is a good complementary to their shoes. Revenue growth will kick off with a good start but its projected to fall slightly to a more sustainable growth rate. COGS, SG&A As Nikes sales rate slowly declines in the next 10 years, their percentage of Cost of Goods Sold over Sales and Selling, General & Administrative percentage also decline. Nike plans to cut costs in the next 10 years. So as their costs decrease and sales increase, their percentage of COGS and SG&A to sales will decrease.NWC Next, we calculated Nikes change in net working capital. Net working capital is curre nt assets minus current liabilities. To do this, we took the average of Nikes asset in percentage to sales and liabilities over sales for the last 4 years. (Refer to Exhibit A). We then take those numbers and multiply it by the projected revenue to get the project current assets and current liabilities for the next 10 years. We took the difference to get the net working capital. The change in net working capital would be just the difference of one year to the next. Exhibit A. CAPEX, net DeprWe calculated the Capital Expenditure and depreciation using a similar model. The 2001 Nike annual report gave us some guidance that CAPEX would not increase in 2002 from the previous year. Based on an increasing cost of depreciation we forecasted 2002 CAPEX net Depr. to be $120 million. Using this projected 2002 value and the three years previous we calculated an average CAPEX net Depr. (See Exhibit B) We feel this average is the best way to estimate an unpredictable CAPEX number. We used this a verage in our forecasts through 2011. Exhibit B. Free Cash Flow After we attain all the CAPEX and the change in NWC, we were able to do a ash flow by taking our net operating income after tax less CAPEX and NWC. For our terminal value, we used the Gordon growth model with a 3 percent growth rate. In our terminal value, we added back the CAPEX value because capital expenditure will eventually be zero in the future. We feel that it wont be accurate to have a negative value for CAPEX for our terminal value. After calculating the future cash flows for Nike, we were able to find the intrinsic value of the company. Using our WACC of 9. 44 percent, we attained a NPV of $15,963 million. During this time, Nike had a current debt balance of about $1,047 million.We subtracted the debt from the NPV to get an equity value for the company of about $14,916 million. We took Nikes equity value and divided by their total number of shares outstanding of 273. 3 for 2001 and got a price of $54. 58. Comp ared to the current market price of Nikes stock of only $42. 09, Nikes stock is undervalued by almost 30 percent. Based on our new estimates of Nikes value, we think that these numbers reflect the company better than what the market says. We also did a sensitivity analysis of Nikes stock using various discount rates. We can see that even at a discount rate of 12 percent, Nikes stock would be $44. 7. This is still about $2 more than what the market valued Nike. Conclusion Knowing that our key to success has been a value investing approach to Large-Cap mutual funds, it is easy to see that we are recommending the investment in Nike, Inc. on the basis of the findings of our financial analysis, which reports the company as undervalued by over 29%. Essentially we are saying that according to our best analysis we believe that the company should be valued by the market at a price 29% higher than it currently is. In terms of stock price this is saying that although Nike is currently selling at $42. 9 we believe it should be priced at $54. 58. It is easy to figure out how this creates value for you as investors as long as Nike stays true to form and true to their word. We do not see the powers that be letting Nike die they recommitted themselves and the company to excellence and have taken appropriate action to signify their sincerity. Their modifications to expenses in combination with their push of apparel and shoes, which despite its decline in market share is responsible for 30% of Nikes revenues, will bring Nike out of their current slump. They will ake this happen over time by slowly working down expenses, in particular cost of goods sold and selling and administration expense, while working to increase revenues. We feel very strongly on the accuracy of both our analytical and corporate analysis in part because despite increasing selling and administrative expenses and fluctuating revenues Nike has ended each fiscal year for the last few years with a positive econ omic value added result. Over the past three years Nike has ended with an average EVA of $387 million, showing that they can go above and beyond market and investor expectations even while in a slump.