Inventory turnover – Net income – Profit margin

Discussion on Inventory turnover – Net income – Profit margin 

NIKE Inc. as a global athletic footwear and apparel market leader company launched operations in 1967 from Beaverton Oregon and now operates as the world’s biggest distributer of sports footwear apparel and accessory products. NIKE works as a design and development company which markets performance footwear for different sports together with sportswear apparel for adult and child customers and accessory offerings ranging from athletic bags to socks. Digital services from NIKE consist of mobile and web platforms that present wellness resources and fitness content and individualized shopping interfaces for customers. The company operates under its primary brands NIKE together with Jordan Brand which targets basketball and streetwear consumers and Converse for traditional sneakers (Cariou & Notteboom, 2022). During the last two years of its financial operations NIKE has demonstrated consistent growth in its business performance metrics. The company achieved stable revenue growth at $51.2 billion & $ 51.3 Billion during the periods of both 2023 and 2024 as shown in the financial reports. This report serves to present NIKE’s business framework and detail its complete products and services followed by presenting financial successes alongside critical market insights directed towards stakeholders seeking NIKE’s worldwide market standing. NIKE’s business health assessment starts with the foundations presented here which will enable future evaluation of their potential and strategic alignment.

1.      Section A- Two recent developments & their impact

a)      Increased application of import tariffs.

The implementation of rising trade protection measures including U.S. import tariffs on products from China and Mexico represents a main factor that influences the performance of NIKE. The modifications in import fees and supply chain interruptions have driven up product selling costs and diminished profit margins (Cariou & Notteboom, 2022).

Financial Impact:

The steady revenue stream at NIKE resulted in cost of sales reaching $28.47 billion in 2024 which showed only a small decrease from $28.92 billion in 2023 because of increased raw material expenses and trade tariffs (Xiong, 2024).

The gross margin improved to 44.6% in FY 2024 compared to 43.5% but negative foreign exchange rates and higher operating expenses affected their results through trade-related logistics challenges and cost inflation problems.

The company admits that its product price increases from tariffs and trade barriers have hurt their earning capacity.

Strategy to Address:

The company supports global trade associations and works to gain trade liberalization while minimizing the effects of tariffs. The company seeks alternative supply sources and supply chain diversification as a strategy to minimize dependency on nations facing severe tariffs.

b)     Weak Consumer Demand in Key Global Markets

The demand for consumer products has weakened noticeably in critical international markets especially the North American and EMEA regions because of economic instability along with rising inflation and shifting market trends (Ali Mohamed Nada, 2023).

Financial Impact:

Sales from North America decreased by 1% totaling $21.4 billion because Men’s and Women’s categories experienced declining market demand. Sales of footwear dropped by 2% while units sold decreased 7% but the average price per unit experienced a slight growth.

The 1% revenue expansion in the EMEA region was offset by a 4% EBIT deterioration because the company experienced decreased Women’s and Kids’ category sales with a substantial gross margin decline of 110 basis points.

Cost reduction initiatives along with strategic pricing methods enabled NIKE to achieve a minimal growth in net income from $5.07 billion to $5.70 billion between 2023 and 2024 even though top-line growth remained flat (Ali Mohamed Nada, 2023).

Strategy to Address:

NIKE launched a company-wide organizational restructuring program in Q3 2024 that involved lowering their worldwide employee numbers. This action has generated funding which NIKE directs into future expansion areas.

NIKE Direct undergoes improvements both in its digital platform and retail establishment while expanding its storefront presence even though digital sales declined by 3%. The NIKE Direct division generates 44% of total brand revenue at present (Pan et al., 2023).

The company devotes substantial financial resources to product creation and brand uniqueness by establishing partnerships and raising average selling prices and strengthening athlete endorsements to maintain brand popularity (Chan et al., 2024).

2.      Section B- Dividend policy and Source of finance

a)      Dividend policy

Dividend History of NIKE

During the preceding several years NIKE has demonstrated a pattern of continuously increasing dividend payments to shareholders. The NIKE organization distributed $1.19 per share as yearly dividends during fiscal year 2022. The dividend payout amount underwent an inflation from $1.33 per share in 2023 to $1.45 per share in 2024. NIKE demonstrates strong belief in its financial stability through its rising dividend policies which serve to deliver value back to shareholders (Moyo, 2024).

Theory Followed by NIKE

The dividend policy of NIKE which includes regular payment and annual dividend growth follows the Bird-in-Hand Theory within the Relevance Theory. Under this theory investors choose immediate certain dividends over future capital gains that remain unknown. Decision to regularly distribute dividends helps NIKE establish better trust with investors alongside delivering a positive financial stability and profitability image. The firm value does not depend on dividends according to the Irrelevance Theory (proposed by Modigliani and Miller). The actions of NIKE demonstrate its strong belief that dividends represent a vital financial instrument which impacts investor response and advances sustained firm worth (Pratas et al., 2025).

Type of Dividend Policy

The dividend policy at NIKE operates using progressive methodology where the company steadily boosts its dividend amounts yearly while matching earnings growth and financial cash flows. The dividend payments of NIKE have increased while the company has maintained dividend distribution during times of flat revenue development and market unpredictability. The company maintained a dividend increase in 2024 with flat revenue at $51.36 billion through strong net income and powerful operating cash flow (Broussard-Goldsmith, 2024).

Impact of Developments on Dividend Policy

Current developments within international business such as inflationary pressures and currency volatility and weakening market demand potentially impacted NIKE’s approaches to dividend payments. The organization maintained its dividend policy framework through all recent business developments. The company experienced a 27% growth of their operating cash flow which reached $7.4 billion in 2024 while starting at $5.8 billion in 2023 thus securing funds for raising dividends. NIKE demonstrates financial agility and operational stability through stable and growing dividend payouts during times of worldwide market turbulence thus proving its dedication to continuous shareholder benefits (Pratas et al., 2025).

b)     Source of finance

Changes in Equity and Non-Current Liabilities

Non-equity finance at NIKE consists of both equity elements (share capital and retained earnings) and long-term debt instruments (long-term borrowings). The value of shareholders’ equity declined by $0.83 billion between 2023 and 2024 to rest at $14.15 billion due to stock repurchases. The firm decreased its long-term debt balance by $480 million during this time period. The company paid down its total debt which consisted of short-term borrowings from $12.49 billion to $12.11 billion. The numbers indicate NIKE executes successful capital structure management through reduced debt elements while distributing funds to shareholders to achieve expanded growth together with financial balance.

Gearing Ratio and Calculation

Organizations use the gearing ratio to measure financial leverage through an analysis of debt when compared to total capital employment (debt combined with equity). The 2024 gearing ratio for NIKE equalled 46.1% which derived from dividing total debt of $12.11 billion against total equity of $14.15 billion. The percentage for the gearing ratio in 2023 was 45.5% when using comparable financial data. The financial leverage usage by NIKE remains at a middle level since its two ratios remain beneath 60%. Debt financing does not dominate the company’s operations since NIKE maintains a balanced relationship between debt and equity financing. The company maintains a favourable access to financing through its moderate debt-to-equity position because its strong credit profile allows it to secure funding rates that minimize financial risks. (Pratiwi & Dewi, 2024)

Capital Structure Policy

The historical data shows that NIKE applies the Net Income Approach (Traditional View) for their capital structure because their gearing ratio never exceeds 60%. According to this perspective an organization that combines debt and equity components optimally will reduce its financing expenses while increasing its market value. NIKE implements debt financing in a purposeful manner through which it maintains high credit ratings from S&P as AA– and Moody’s as A1. The structured debt management system enables the company to take advantage of tax benefits associated with debt financing without exposing itself to excessive financial risk. A unique aspect of NIKE’s capital structure management consists of debt reduction while funding investments in growth with innovation along with shareholder return generation.

Financial Risk and Cash Management

The NIKE organization implements sound financial risk management systems alongside effective cash management protocols. Through foreign currency forward contracts and interest rate swaps the company sets hedges against exchange rate and borrowing costs changes. The company demonstrated successful risk management by decreasing its Value at Risk (VaR) from currency derivatives from $111 million in 2024 to $57 million. NIKE maintains robust financial stability through close to $10.3 billion spendable funds which include $8.5 billion in cash and $1.8 billion in short-term investments. The company secures its financial position through two important credit facilities with a $2 billion five-year line along with a $1 billion 364-day facility. The company maintains these tools to fulfill payment responsibilities and sustain operational funding as well as investment possibilities despite current unpredictable world conditions.

3.      Section C- Ratio Analysis

a)      Profitability Ratios

1-      Net Profit Margin

Net Profit Margin demonstrates the profit amount as a percentage of revenue after subtracting every business expense. The Net Profit Margin divides total revenue to show businesses the amount of profit obtained from each earned dollar (Budiyanta, 2021).

The net profit margin for NIKE experienced an increase from 9.89% in 2023 to 11.1% in 2024 as the company enhanced their financial strength along with implementing better cost management strategies. Absolute numbers show NIKE achieved a $630 million growth of net income from $5,070 billion in 2023 to $5,700 billion in 2024.

 NIKE achieved improved net margin results through stronger gross and operating margins together with a decreases in diluted shares outstanding because of its active share repurchase strategy. The bottom line received enhancement from lowered effective tax rates and controlled spending that targeted marketing and general administration functions. (Zhang, 2023).

2-      Gross Profit Margin

The financial metric Gross Profit Margin expresses revenue residuals above cost of goods sold (COGS) as a percentage value (Evmenchik et al., 2021). The measurement shows how well a business produces and sells its products to market. The measurement evaluates the residual funds that remain after expenses used to create and distribute the sold products have been deducted from total revenue. 

The gross profit margin of Nike rose slightly in 2024 to 44.56% compared to 43.52% in 2023. Strategic price management initiatives across the apparel line and reduced logistics expenses with decreased ocean freight costs work together to improve Nike’s gross margin level. Gross profit at Nike rose by 0.28% from year to year while revenue remained at a similar level in comparison to the previous time period. The company maintains strong profit margins because it operates efficiently in a competitive market environment. The increased gross profit margin together with effective cost control lets Nike position itself for continued profitability in upcoming years (Zhang, 2023).

b)     Liquidity Ratios

• Current Ratio

As an essential financial ratio the current ratio shows how a company can pay its one-year obligations by comparing its cash and assets projected to become cash or used during twelve months. The liquidity assessment of a business arises through this ratio which shows whether assets can satisfy short-term debt payments (Utami, 2017).

The growth in short-term financial obligations through short-term debt along with accounts payable and accrued expenses exceeded the increase in liquid assets. The strategically increase of Nike’s inventory levels for better supply chain management resulted in less liquid resources that provided minimal support to the company’s short-term financial obligations. Nike maintains solid short-term financial stability with its current ratio of 2.30 even though it has decreased from its previous year. The reduction indicates future liquidity challenges which the company needs to resolve in order to maintain stable operations.

 Quick Ratio (Acid-Test Ratio)

The quick ratio functions as a strict measurement of liquidity since it goes further than the current ratio. Recipients of the quick ratio assessment do not evaluate inventory as it does not convert into cash within the short period. Companies use the quick ratio to determine their ability to pay debts immediately through operational cash flows instead of inventory sales (Chairunisa et al., 2023).

The quick ratio rating at Nike decreased slightly from 1.81 in 2023 to 1.68 in 2024 because the company experienced minor degradation in its immediate cash availability without inventory in current assets. During 2024 Nike demonstrated a small increase in current assets which grew from $25,202 million in 2023 to $25,382 million simultaneously its current liabilities numerically increased from $9,256 million to $10,593 million. Nike’s inventory consumption becomes the main metric alteration because it dropped from $8,454 million in 2023 to $7,519 million in 2024. The diminished inventory suggests Nike implemented successful inventory management strategies probably because it needed increased cash flow or adjusted to market demand fluctuations. Although Nike’s quick ratio decreased due to its current liabilities growing more rapidly than inventory levels dropped.

 c)      Efficiency Ratios

• Inventory Turnover Ratio

 The Inventory Turnover Ratio functions as a financial ratio which demonstrates how well companies handle their inventory management operations. A company reveals its inventory replacement frequency during a particular time period which normally spans one year through this ratio. The ratio depicts quick inventory sales and restocking cycles which typically points to effective sales market performance along with superior inventory management practices.  (Aghazadeh, 2009)

Nike showed a minimal decline in inventory turnover ratio which transformed from 3.56 in 2023 to 3.50 in 2024. The annual report of Nike shows what causes this downturn in their inventory turnover ratio. The company decreased its inventory numbers by 11% because the total inventory value fell from $8.454 billion in 2023 to $7.519 billion in 2024. According to the report Nike implemented product supply reductions specifically in footwear to introduce newer innovations which then became available in the market. The marketing adaptation likely played a role in slowing inventory turnover since Nike made these market adjustments. The minimal decrease in inventory turnover ratio shows Nike continues its market-demand-focused supply chain optimization with inventory management activities.

• Receivable Days

The Receivables Turnover Days measurement tells how many days on average it requires a business to gather its accounts receivable from customers. A high number of days in the analysis shows poor collection performance for the company yet fewer days indicates collection happens promptly (Haeruddin, 2023).

The period that Nike took to collect its customer payments titled Receivables Turnover Days showed a minimal improvement from 31.34 days in 2023 to 30.5 days in 2024. This demonstrates the company’s enhanced ability to receive money from customers. Nike’s profitability improved in 2024 because the company experienced a speedup in converting their receivables to cash during this period. Revenue experienced a minimal increase from $51,217 million in 2023 to $51,362 million in 2024 coupled with a reduction of accounts receivable from $4,667 million to $4,427 million throughout the same period. A decrease in accounts receivable shows that Nike achieved improved payment collection efficiency even as its revenue grew. The business achieves this improvement through improved credit management practices that conduct stronger credit examinations and accelerate customer communication.

d)     Investment Ratios

• Earnings per share EPS

The financial indicator Earnings Per Share (EPS) shows which portion of total profits belongs to each common stockholder unit. (Ohlson & Juettner-Nauroth, 2005).

The earnings per share (EPS) values of Nike rose from $3.23 to $3.73 between fiscal year 2023 and fiscal year 2024. The increase in EPS demonstrates Nike’s enhanced profitability which resulted from better operational efficiencies, cost control measures and increased revenue performance. The company performed better in terms of profits per share as indicated by the improved EPS because it generated higher sales volumes in apparel and footwear products and successfully controlled its expenses

• Price to Earnings Ratio P/E

The Price-to-Earnings (P/E) ratio represents a financial evaluation method that relates company stock value to income given to each average share holder. The market’s expectation about future growth stands higher when the P/E ratio increases whereas lower P/E ratios usually mean the market expects lesser future growth (Easton, 2004).

The Price-to-Earnings ratio for Nike dropped from 33.68 in 2023 to 25.47 during 2024. The market shows decreased valuation of Nike’s earnings in 2024 through P/E ratio multiples that reached lower levels than in 2023. EPS growth was accompanied by declining P/E ratio numbers possibly because investors demonstrated reduced faith about Nike’s projected expansion. The P/E ratio and stock value experienced decreased figures which might signify different market conditions including economic market instability and changing investor perspectives.

4.      Conclusion: Overall Financial Performance Evaluation

The combination of strategic foresight and cost discipline and operational excellence allows NIKE to deliver strong financial results. The company passed global macroeconomic challenges and now presents itself with improved profitability and liquidity along with better shareholder value. The global athletic apparel and footwear market sees NIKE maintaining solid competitive advantages that support its ongoing innovative expansion and lasting market success.

5.      Reference

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