Finance

Long-Term Financial Planning and Nike

For any company to be successful it is essential that the company and its’ management determine what they are going to do, and how they are going to do it; this is the very core of strategic planning (Lynch, 2011). Part of this is the setting of long-term goals and objectives in a financial planning context. The importance of the long-term goal setting and objective setting can be seen by looking at a successful firm such as Nike.

Nike is a well-known sports brand, it has been highly successful and in the last ten years the revenue of the firm has more than doubled, and the earnings per share have been increased by an average of 15% per annum (Parker, 2013). This is an impressive growth rate, which is much higher than the industry average; sales on sales growth in 2013 was 7.7% compared to 2012, with a net profit margin slightly above the average at 10.45% compared to the industry average at 10.34% (MSN Money 2013). While firms may be successful if they are lucky, it is generally accepted that there needs to be planning for a firm to be successful in the long-term. Long-term goal setting is a part of this, and the success at Nike may be seen as the result of an aggressive growth strategy that the company has pursued as well as a commitment seven years previously the CEO to make the firm more “nimble and strong” (Parker, 2013).

Over the last seven years the firm has undertaken a great deal of change, many of the changes have been strategic and appear to be focused on some of the core goals of the organization, including the desire to grow revenue and increase profit. Over the last decade many input costs have increased, but the firm has undertaken actions that have created internal efficiency and supported profitability. One of these strategies is the constant reviewing of the outsource suppliers which manufacture the majority of the good sold under the Nike brands, currently 42% of the goods are manufactured in Vietnam, 30% in China and 26% in Indonesia (Nike, 2013). The fact that the firm uses outsourcing and the way this has been chosen is evidence of the setting of long-term financial goals and objectives; the strategy is an effective cost saving tactic that reduces production costs as well as frees the firm from many of the overheads associated with such large scale manufacture; the decision on this strategy and the assessment of its implementation will be guided by a number of factors, including the ability of the firm to meet its financial objectives from the practice. The planning for this is not only the assessment of cost and profit, but also requires careful integrated planning for the current and future market demand that the firm will satisfy with the suppliers manufacturing contracts, including the sales and financial forecasts which will be tied in with marketing. In short; Nike also need to know how many items to order, and make sure suppliers can meet the required capacity to meet the goals.

Evidence of long-term planning for the future is also visible in the 2013 financial report of Nike. In the letter to the Shareholders Parker (2013) projects that there is going to be a significant increase in the customers bases of 10 billion customers, mainly coming from the ‘BRICS’ nations, these are Brazil, Russia, India, China and South Africa. It is noted each market has some cultural differences, but sport is a common feature. If Nike wants to gain from these changes in the market they will need to plan for the long-term so that they can be present as the market grows, this requires panning and the setting of objectives. While they are not declared, objectives may be to gain a specific level of the market, to gain specific levels of growth and to attain specific profit levels. However, the planning is not only for sales, long-term financial planning will also incorporate the elements needed for Nike to realize the sales targets, this may mean planning for the setting up of new regional offices in the new markets, similar to the Netherlands regional office and any other supporting facilities, which will require capital for investment; this shows the way investment planning is also a part of the long-term goals and objectives that needs to be set.

Nike is a well-known firm, and appears to have set long-term financial goals and objective in the past, evidence by the Parkers (2013) letter to the shareholders. It also appears that there is long-term financial planning taking place; whole the ultimate goal is to increase sales and profits, the planning goes beyond this, as the firm needs to prepare and support all activities that lead to sales and profit, from the managing of the outsource suppers through to the provision of regional office and marketing. The discussion of the BRICS nations in the annual statement indicate one area in which this is necessary for the firms future success, and it highly likely to be taking place.

References

Lynch, R, (2011), Strategic Management, Prentice Hall

MSN Money, (2013), Nike Inc., accessed http://investing.money.msn.com/investments/key-ratios?symbol=U.S.%3aNKE&page=ProfitMargins 23rd November 2013

Nike, (2013), 10k, Nike

Parker, M, (2013), “Letter to Shareholders,” Nike Annual Report, accessed http://investors.nikeinc.com/files/doc_financials/AnnualReports/2013/index.html#mark_parker_letter 23rd November 2013