Comparative Assessment of Nike and Adidas Companies (Essay Sample)

COMPARATIVE ASSESSMENT OF NIKE AND ADIDAS COMPANIES
MILESTONE ONE
Background Information
Nike was incorporated in the year 1967. The strategic objectives were design, development, and manufacture, marketing and selling of athletic wear at a global scale. In order to achieve this objective the firm has diversified its products. Due to changes in customers taste and preference, progressive development and aggressive marketing are needed. For this the firm has employed a personal and distinct management style where planned risk management and conservative decision making are the key strategies for development. In addition, the firm has always analysed its internal and external environment, made use of participation in decision making and has ensured quality control in all departments (Nike Form 10-K, 2018). Sales are mainly through their established retail shops and use of online platforms. Management of the company is quite decentralised by geography. The firm has heavily invested in research which has been a key success factor which has made it be strategically positioned at a global scale. The top management is highly skilled which has led to increased team motivation, faith and esteem. In addition, the firm has qualified personnel from all field to ensure maximum quality and customer satisfaction. Nike major focus has been on persuading customers to buy their products and investors to buy their stock.
Adidas was incorporated in 1924 with the main purpose of becoming the world best producer of sports ware. The management style applied has been departmental which has highly been decentralised by geography. Main success strategies that have been employed include; technological advancement, strategic innovations, employees efficiency, mid-pricing, diverse portfolio and customer satisfaction. In addition, like Nike it has heavily invested in research and has decentralised its distribution networks to increase revenue. It has also intensified on digital capacity so as to move their products and uses employees’ creativity (Addidas, 2018). The firm as also ensured that it has opened branches in different cities aiming at maximizing profits while reducing leverage.
Cash flow management of the firms
Nike had cash of $4955 million in 2018 while in 2017 the cash was $3846 million from operating activities. This was a cash growth of 28.8%. The rise was due to aggressive marketing and strong brand. Net profit adjusted for non-cash generated $3473 cash available for operating activities in 2018 while in 2017 the cash for operating activities was $4781 showing a decline of 27.4% ((Nike Form 10-K, 2018). The decline was majorly due to increased marketing and brand development costs. In 2016 the cash from operating activities was $3399 million hence increased by 40.7% in 2017. Account receivable changed by a decline of $187 million in 2018 compared to the 2017 increase of $426 million and 2016 decline of $60 million. The decline was associated with the gradual changes in the days used to collect debts. Inventory increased in 2018 by $255 million in 2016 by $231 million and 2016 by $590 million. More cash was available and increased over the years. Liability decreased in 2018 by $1515 million while in 2017 had increased by $158 million. In 2016 liability had increased by $586 million. Since the policy of the firm includes using retained earnings more to finance its activities, the firm has been able to make more purchases in cash.
Cash for investment activities by Nike was $276 million for 2018 as compared to $1080 million in 2017 and $1034 in 2016. This was due to changed investment options. Cash for financing activities was $4835 in 2018 as compared to $2148 in 2017 and $2974 in 2016. The increase in cash available for investing was due to repurchase of stock (Nike annual report, 2018).
For Adidas the operating cash was $2646 for 2018, $1648 for 2017 and $376 million for year 2016. The increase was attributed to the ability of the firm to diversify, quality, digital marketing and brand development. For year 2018 the receivables increased by $209 while in 2017 the increase was by $477 million and $893 in 2016. The receivables declined over the years as the firm had developed a debt collection policy and reduced receivables collection days. In 2018 inventories decreased by $180 million but in 2017 it increased by $216 million and $117 million in 2016. The decline in inventory was due to the major shock the firm had experienced in relation to employees welfare and weak distributional networks. Accounts payables increased by $741 in 2018, by $422 in 2017 and by $23 million in 2016 (Adidas report, 2018; Adidas report, 2017; Jayawardhana, 2016). The changes were majorly due to changes in customers since customer’s fluctuations had majorly affected sales. Net cash from investing activities was $636 million in 2018 and $680 in 2017 and $53 million in 2016. From financing 2018 had $951 and $769 in 2017 and $309 in 2016. Cash for 2018 was $2629, in 2017 it was $1598 and $1510 in 2016 (Adidas report, 2018).
In terms of cash management, Nike was performing better than Adidas though both firms have increased their cash flow from year to year.
MILESTONE TWO
Assessment of economic climate
Interest rates
An increase in the interest rates reduces investment rate. Similarly, in the stock market, an increase in interest rate will make buying undesirable. Consequently, high interest rates lead to high cost of production and increase prices of products. Changes in global interest rates affects future investments making the interest expense variable. Interest rate risk has not been a major problem for Adidas. For the industry the rate has been at 4.4%. In the year 2018, the firm had little interest liability thus changes would not have a material effect on the firm profitability. The firm has made it a policy to use surplus cash flow for investment and thus maintains low borrowings. Consequently, reducing the interest risk. For Nike the effective interest rate in 2018 was 3.3% and on debt has been about 8.09% an indication that changes in international rates would have a material effect on the company’s liability.
Inflation
Inflation affects the purchasing power of customers due to increased customer prices. The price increase is persistent in such a way that the consumers demand less of the product hence affecting the company sales. For instance Nike has suffered a lot due to inflation, it has led to increased transport cost and production cost. Consequently, the firm has been forces to increase its product prices and to reduce its marketing cost. Similarly, in 2016 the effect of inflation led to a hike of Adidas shoes. Labour prices are expected to raise by 11-15% while material prices went up by 1-4%.
Federal Reserve plan
From the year 2008, the rates offered by federal were reduced to zero which made investments increase and capital more affordable to customers. Later the federal made a move to increase rates to a new range of 0.25-0.50. Coupled with anticipated high duties and cheaper fuel cost, the move would not have a significant effect on the shoe industry. However, if the rates will continually increase, the industry will be affected after mortgages. In addition, the currency effect pushed down Adidas gross profit 50%.
Ethical considerations
Sarbanes-Oxley act help to crack down fraud acts. It overseas the financial reporting platform and helps investors by ensuring all necessary disclosures are made. In addition, it ensure the professional code of conduct is adhered to. The code of professionalism, convenience, confidentiality, accuracy and integrity are taken care of and thus investment is based on informed decisions (Mahdi et.al, 2015). On the disclosure, Nike has had allegations of poor working conditions and low wages for workers. Through the Act, the company can monitor firms outside USA and assess their wage rates. Using the act the firm could also monitor closely changed in internal control systems. Adidas has been sponsoring sports activities, charitable works and education as major corporate social responsibility work. The Act made the firms more sensitive in presentation of their financial information by making necessary disclosures. Both have made disclosures below their financial statements (Easton & Sommers, 2018).
The disclosure impacted on both firms cash flow statements. Both firms were compelled to disclose their assets and liabilities giving a discussion on how the closing balances were arrived at.
MILESTONE THREE
Evaluation of working capital
The net working capital available for year 2018 was higher compared to 2017 for Nike. For the year 2017, the working capital declined by $935 million while in 2018 the working capital increased by $ 1482. The Nike 2018 working capital was impacted by the accrued tax of $1172 that would be paid in eight years. The fluctuations was also attributed to the changes in interest rates that affected the stock the firm would acquire. The cash from operations was also impacted by the increased cash collected from cash receivables. This was due to a decreased collection time in 2018 as compared to 2017. The net change in investment led to inflows of $1326 million in 2018 as compared to $118 in 2017 (Nike annual report, 2018; Nike annual report, 2017).
For Adidas, the operating cash was $2646 for 2018, $1648 for 2017 and $376 million for year 2016. The cash from operating activities increased over time due to development of more effective collection systems, expansion of markets and involvement in aggressive marketing. For year 2018 the receivables increased by $209 while in 2017 the increase was by $47...