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Financial Management of Nike Research Paper

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Updated: Jan 11th, 2022

Introduction

Financial management refers to the planning and management of finances of a business with the sole aim of achieving the set goals. It is geared towards maximizing profits and reducing losses. The main objectives include wealth creation and generation of a substantial return on investment (ROI) and cash based on risks taken and resources invested. Financial management involves acute planning, good control of finances, and appropriate decision-making (Megginson & Smart, 2009, p.24). Nike is a publicly-traded company that deals in sportswear and associated sports equipment. It is based in the United States and has its headquarters at Beaverton. In 2008, it had a workforce of 28,000 people and with its high financial turnover, good financial management was inevitable (Business Week, 2004).

Discussion

Before the entry of Don Blair in1999 as the Chief Financial Officer, Nike was undergoing a bad financial management crisis. This was a result of bad financial discipline, inappropriate supply-chain management, and bad operations. Blair helped in restoring its credibility in the financial markets by changing the business model they were using at the time. He introduced a new financial model that inculcated discipline, maintained steady growth, and attained an increase in profit levels (Business Week, 2004). Nike’s financial model ensures a good financial and operational relationship with its designers and numerous marketers. Their financial exploits are mainly pegged on the creativity and ability of their designers to produce quality designs that guarantee good performance in the market (Business Week, 2004).

The financial model that Nike adopted in the fall of the year 2000 was much different from the one they had before. The design they came up with centered on lower-octane revenue growth. Revenues shot up to 40% from 15% in earlier years with a small difference of 5% whenever they dipped. Nike has achieved substantial financial growth because it has excellent management of working capital and its culture of leveraging all of its assets (Business Week, 2004). This has maintained a steady cash flow and augmented the financial strength of their operations. Nike has also improved its operations in retail investments. They raised their dividends and spent $420 million in stock purchase last year. This has raised their cash flow by a great margin (Business Week, 2004).

Nike’s financial model is geared towards achieving a higher rate of growth, increasing volatility by a steady margin, and maintaining its investors’ confidence. They are achieving this through high financial investment in creativity and innovation. Nike understands that they ply a market that depends on the quality of the products supplied in the market. That is why they maintain a steady cash flow to be able to overcome the dynamics of the markets (Business Week, 2004). This is why they spend a lot of money in using professional athletes and college teams to endorse and market their products. They spend a large amount of their revenue on marketing and advertising their products.

Nike’s financial problem areas include their new model of demand and supply system. This has changed their product distribution management system and has resulted in shortages and excesses of products in the market and late deliveries. As a result, their profits have dipped and revenue growth has decreased. Another problem is competition from other companies. This has pushed Nike into spending more money on marketing and advertisements thus lowering their profits by a great margin (Business Week, 2004).

Conclusion

As one of the largest sportswear manufacturers and suppliers, Nike’s success has been leveraged by its financial management system. They invest mostly in innovation and creativity to maintain a competitive edge by producing high-quality products.

References

Business Week. (2004). The New Nike. Web.

Megginson, W.L,. & Smart. S. (2009). Introduction to Corporate Finance. South-West England: Cengage Learning.

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