Intrinsic value of Nike Cl B - NKE

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$55.47

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$55.47

 
Intrinsic value

$35.09

 
Up/down potential

-37%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NKE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 91.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.80
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  32,376
  33,995
  35,695
  37,479
  39,353
  41,321
  43,387
  45,556
  47,834
  50,226
  52,737
  55,374
  58,143
  61,050
  64,102
  67,307
  70,673
  74,206
  77,917
  81,813
  85,903
  90,198
  94,708
  99,444
  104,416
  109,637
  115,118
  120,874
  126,918
  133,264
  139,927
Variable operating expenses, $m
 
  27,739
  29,125
  30,581
  32,109
  33,714
  35,399
  37,169
  39,026
  40,977
  43,025
  45,163
  47,421
  49,792
  52,282
  54,896
  57,640
  60,522
  63,549
  66,726
  70,062
  73,565
  77,244
  81,106
  85,161
  89,419
  93,890
  98,585
  103,514
  108,690
  114,124
Fixed operating expenses, $m
 
  1,536
  1,575
  1,614
  1,655
  1,696
  1,738
  1,782
  1,826
  1,872
  1,919
  1,967
  2,016
  2,066
  2,118
  2,171
  2,225
  2,281
  2,338
  2,396
  2,456
  2,518
  2,581
  2,645
  2,711
  2,779
  2,849
  2,920
  2,993
  3,068
  3,144
Total operating expenses, $m
  27,874
  29,275
  30,700
  32,195
  33,764
  35,410
  37,137
  38,951
  40,852
  42,849
  44,944
  47,130
  49,437
  51,858
  54,400
  57,067
  59,865
  62,803
  65,887
  69,122
  72,518
  76,083
  79,825
  83,751
  87,872
  92,198
  96,739
  101,505
  106,507
  111,758
  117,268
Operating income, $m
  4,502
  4,719
  4,994
  5,284
  5,589
  5,911
  6,249
  6,606
  6,981
  7,377
  7,793
  8,244
  8,706
  9,191
  9,703
  10,241
  10,807
  11,403
  12,030
  12,690
  13,385
  14,115
  14,884
  15,693
  16,543
  17,438
  18,380
  19,370
  20,412
  21,507
  22,659
EBITDA, $m
  5,164
  5,106
  5,400
  5,709
  6,035
  6,378
  6,740
  7,120
  7,521
  7,942
  8,386
  8,854
  9,345
  9,863
  10,408
  10,981
  11,585
  12,219
  12,887
  13,590
  14,330
  15,107
  15,926
  16,787
  17,692
  18,644
  19,646
  20,700
  21,808
  22,973
  24,198
Interest expense (income), $m
  70
  84
  103
  123
  144
  166
  189
  214
  239
  266
  294
  324
  355
  388
  422
  458
  496
  535
  577
  621
  666
  715
  765
  818
  874
  933
  994
  1,059
  1,127
  1,198
  1,273
Earnings before tax, $m
  4,623
  4,636
  4,891
  5,161
  5,445
  5,744
  6,060
  6,392
  6,742
  7,111
  7,499
  7,921
  8,351
  8,804
  9,281
  9,783
  10,312
  10,868
  11,453
  12,070
  12,718
  13,401
  14,119
  14,874
  15,669
  16,506
  17,386
  18,311
  19,285
  20,309
  21,386
Tax expense, $m
  863
  1,252
  1,321
  1,393
  1,470
  1,551
  1,636
  1,726
  1,820
  1,920
  2,025
  2,139
  2,255
  2,377
  2,506
  2,641
  2,784
  2,934
  3,092
  3,259
  3,434
  3,618
  3,812
  4,016
  4,231
  4,457
  4,694
  4,944
  5,207
  5,483
  5,774
Net income, $m
  3,760
  3,384
  3,571
  3,767
  3,975
  4,193
  4,424
  4,666
  4,922
  5,191
  5,474
  5,782
  6,096
  6,427
  6,775
  7,142
  7,527
  7,934
  8,361
  8,811
  9,284
  9,782
  10,307
  10,858
  11,439
  12,049
  12,691
  13,367
  14,078
  14,826
  15,612

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,499
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  21,379
  16,672
  17,506
  18,381
  19,300
  20,265
  21,279
  22,342
  23,460
  24,633
  25,864
  27,157
  28,515
  29,941
  31,438
  33,010
  34,660
  36,394
  38,213
  40,124
  42,130
  44,237
  46,448
  48,771
  51,209
  53,770
  56,458
  59,281
  62,245
  65,358
  68,625
Adjusted assets (=assets-cash), $m
  15,880
  16,672
  17,506
  18,381
  19,300
  20,265
  21,279
  22,342
  23,460
  24,633
  25,864
  27,157
  28,515
  29,941
  31,438
  33,010
  34,660
  36,394
  38,213
  40,124
  42,130
  44,237
  46,448
  48,771
  51,209
  53,770
  56,458
  59,281
  62,245
  65,358
  68,625
Revenue / Adjusted assets
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
  2.039
Average production assets, $m
  1,787
  1,870
  1,963
  2,061
  2,164
  2,273
  2,386
  2,506
  2,631
  2,762
  2,901
  3,046
  3,198
  3,358
  3,526
  3,702
  3,887
  4,081
  4,285
  4,500
  4,725
  4,961
  5,209
  5,469
  5,743
  6,030
  6,332
  6,648
  6,980
  7,330
  7,696
Working capital, $m
  9,667
  4,419
  4,640
  4,872
  5,116
  5,372
  5,640
  5,922
  6,218
  6,529
  6,856
  7,199
  7,559
  7,936
  8,333
  8,750
  9,187
  9,647
  10,129
  10,636
  11,167
  11,726
  12,312
  12,928
  13,574
  14,253
  14,965
  15,714
  16,499
  17,324
  18,191
Total debt, $m
  2,038
  2,454
  2,930
  3,431
  3,957
  4,509
  5,088
  5,697
  6,336
  7,007
  7,711
  8,451
  9,228
  10,043
  10,900
  11,799
  12,743
  13,734
  14,775
  15,868
  17,015
  18,220
  19,485
  20,814
  22,209
  23,673
  25,211
  26,826
  28,521
  30,302
  32,171
Total liabilities, $m
  9,121
  9,537
  10,013
  10,514
  11,040
  11,592
  12,171
  12,780
  13,419
  14,090
  14,794
  15,534
  16,311
  17,126
  17,983
  18,882
  19,826
  20,817
  21,858
  22,951
  24,098
  25,303
  26,568
  27,897
  29,292
  30,756
  32,294
  33,909
  35,604
  37,385
  39,254
Total equity, $m
  12,258
  7,136
  7,493
  7,867
  8,261
  8,674
  9,107
  9,563
  10,041
  10,543
  11,070
  11,623
  12,205
  12,815
  13,456
  14,128
  14,835
  15,576
  16,355
  17,173
  18,032
  18,933
  19,880
  20,874
  21,918
  23,013
  24,164
  25,372
  26,641
  27,973
  29,372
Total liabilities and equity, $m
  21,379
  16,673
  17,506
  18,381
  19,301
  20,266
  21,278
  22,343
  23,460
  24,633
  25,864
  27,157
  28,516
  29,941
  31,439
  33,010
  34,661
  36,393
  38,213
  40,124
  42,130
  44,236
  46,448
  48,771
  51,210
  53,769
  56,458
  59,281
  62,245
  65,358
  68,626
Debt-to-equity ratio
  0.166
  0.340
  0.390
  0.440
  0.480
  0.520
  0.560
  0.600
  0.630
  0.660
  0.700
  0.730
  0.760
  0.780
  0.810
  0.840
  0.860
  0.880
  0.900
  0.920
  0.940
  0.960
  0.980
  1.000
  1.010
  1.030
  1.040
  1.060
  1.070
  1.080
  1.100
Adjusted equity ratio
  0.426
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428
  0.428

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,760
  3,384
  3,571
  3,767
  3,975
  4,193
  4,424
  4,666
  4,922
  5,191
  5,474
  5,782
  6,096
  6,427
  6,775
  7,142
  7,527
  7,934
  8,361
  8,811
  9,284
  9,782
  10,307
  10,858
  11,439
  12,049
  12,691
  13,367
  14,078
  14,826
  15,612
Depreciation, amort., depletion, $m
  662
  387
  406
  425
  446
  468
  490
  514
  539
  566
  593
  609
  640
  672
  705
  740
  777
  816
  857
  900
  945
  992
  1,042
  1,094
  1,149
  1,206
  1,266
  1,330
  1,396
  1,466
  1,539
Funds from operations, $m
  1,516
  3,771
  3,976
  4,193
  4,421
  4,661
  4,914
  5,180
  5,461
  5,756
  6,067
  6,391
  6,736
  7,098
  7,480
  7,882
  8,305
  8,750
  9,218
  9,711
  10,229
  10,775
  11,348
  11,952
  12,587
  13,255
  13,958
  14,697
  15,474
  16,292
  17,151
Change in working capital, $m
  -1,580
  210
  221
  232
  244
  256
  269
  282
  296
  311
  326
  343
  360
  378
  397
  417
  437
  459
  482
  506
  532
  558
  586
  616
  646
  679
  713
  748
  786
  825
  866
Cash from operations, $m
  3,096
  2,055
  3,755
  3,961
  4,177
  4,405
  4,646
  4,898
  5,165
  5,445
  5,741
  6,048
  6,376
  6,720
  7,083
  7,465
  7,867
  8,290
  8,736
  9,204
  9,697
  10,216
  10,762
  11,337
  11,941
  12,576
  13,245
  13,949
  14,688
  15,467
  16,285
Maintenance CAPEX, $m
  0
  -357
  -374
  -393
  -412
  -433
  -455
  -477
  -501
  -526
  -552
  -580
  -609
  -640
  -672
  -705
  -740
  -777
  -816
  -857
  -900
  -945
  -992
  -1,042
  -1,094
  -1,149
  -1,206
  -1,266
  -1,330
  -1,396
  -1,466
New CAPEX, $m
  -1,143
  -83
  -93
  -98
  -103
  -108
  -114
  -119
  -125
  -132
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -194
  -204
  -214
  -225
  -236
  -248
  -260
  -273
  -287
  -302
  -317
  -332
  -349
  -366
Cash from investing activities, $m
  -1,034
  -440
  -467
  -491
  -515
  -541
  -569
  -596
  -626
  -658
  -690
  -725
  -761
  -800
  -840
  -881
  -925
  -971
  -1,020
  -1,071
  -1,125
  -1,181
  -1,240
  -1,302
  -1,367
  -1,436
  -1,508
  -1,583
  -1,662
  -1,745
  -1,832
Free cash flow, $m
  2,062
  1,615
  3,288
  3,470
  3,662
  3,864
  4,077
  4,302
  4,538
  4,788
  5,050
  5,323
  5,614
  5,921
  6,244
  6,584
  6,942
  7,319
  7,715
  8,133
  8,573
  9,035
  9,522
  10,034
  10,573
  11,141
  11,738
  12,366
  13,026
  13,721
  14,453
Issuance/(repayment) of debt, $m
  801
  461
  477
  501
  526
  552
  580
  609
  639
  671
  704
  740
  777
  816
  856
  899
  944
  991
  1,041
  1,093
  1,148
  1,205
  1,265
  1,328
  1,395
  1,465
  1,538
  1,615
  1,695
  1,780
  1,869
Issuance/(repurchase) of shares, $m
  -2,731
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,649
  461
  477
  501
  526
  552
  580
  609
  639
  671
  704
  740
  777
  816
  856
  899
  944
  991
  1,041
  1,093
  1,148
  1,205
  1,265
  1,328
  1,395
  1,465
  1,538
  1,615
  1,695
  1,780
  1,869
Total cash flow (excl. dividends), $m
  308
  2,075
  3,765
  3,971
  4,188
  4,416
  4,657
  4,910
  5,177
  5,459
  5,755
  6,063
  6,391
  6,737
  7,100
  7,483
  7,886
  8,310
  8,756
  9,226
  9,720
  10,240
  10,787
  11,363
  11,968
  12,605
  13,275
  13,980
  14,722
  15,502
  16,322
Retained Cash Flow (-), $m
  449
  -332
  -357
  -375
  -393
  -413
  -434
  -455
  -478
  -502
  -527
  -553
  -581
  -610
  -641
  -673
  -706
  -742
  -779
  -818
  -859
  -902
  -947
  -994
  -1,044
  -1,096
  -1,151
  -1,208
  -1,269
  -1,332
  -1,399
Prev. year cash balance distribution, $m
 
  5,454
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  7,197
  3,408
  3,596
  3,794
  4,003
  4,223
  4,455
  4,699
  4,957
  5,228
  5,509
  5,810
  6,126
  6,459
  6,810
  7,180
  7,568
  7,977
  8,408
  8,861
  9,338
  9,840
  10,369
  10,925
  11,509
  12,125
  12,772
  13,453
  14,170
  14,923
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  6,901
  3,120
  3,130
  3,124
  3,103
  3,065
  3,010
  2,937
  2,847
  2,741
  2,616
  2,479
  2,329
  2,169
  1,999
  1,824
  1,647
  1,469
  1,295
  1,126
  966
  817
  680
  556
  448
  354
  274
  208
  155
  112
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers products in nine categories, including running, NIKE basketball, the Jordan brand, football, men’s training, women’s training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs, and other equipment under the NIKE brand name for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites (direct to consumer operations), as well as independent distributors and licensees. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon.

FINANCIAL RATIOS  of  Nike Cl B (NKE)

Valuation Ratios
P/E Ratio 24.8
Price to Sales 2.9
Price to Book 7.6
Price to Tangible Book
Price to Cash Flow 30.1
Price to Free Cash Flow 47.8
Growth Rates
Sales Growth Rate 5.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 18.7%
Cap. Spend. - 3 Yr. Gr. Rate 13.8%
Financial Strength
Quick Ratio 122
Current Ratio 0.1
LT Debt to Equity 16.3%
Total Debt to Equity 16.6%
Interest Coverage 67
Management Effectiveness
Return On Assets 17.8%
Ret/ On Assets - 3 Yr. Avg. 16.5%
Return On Total Capital 26.6%
Ret/ On T. Cap. - 3 Yr. Avg. 24.5%
Return On Equity 30.1%
Return On Equity - 3 Yr. Avg. 27.5%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 46.2%
Gross Margin - 3 Yr. Avg. 45.7%
EBITDA Margin 16.5%
EBITDA Margin - 3 Yr. Avg. 15.9%
Operating Margin 13.9%
Oper. Margin - 3 Yr. Avg. 13.6%
Pre-Tax Margin 14.3%
Pre-Tax Margin - 3 Yr. Avg. 13.6%
Net Profit Margin 11.6%
Net Profit Margin - 3 Yr. Avg. 10.7%
Effective Tax Rate 18.7%
Eff/ Tax Rate - 3 Yr. Avg. 21.6%
Payout Ratio 27.2%

NKE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NKE stock intrinsic value calculation we used $32376 million for the last fiscal year's total revenue generated by Nike Cl B. The default revenue input number comes from 2016 income statement of Nike Cl B. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NKE stock valuation model: a) initial revenue growth rate of 5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NKE is calculated based on our internal credit rating of Nike Cl B, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Nike Cl B.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NKE stock the variable cost ratio is equal to 81.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1499 million in the base year in the intrinsic value calculation for NKE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.2% for Nike Cl B.

Corporate tax rate of 27% is the nominal tax rate for Nike Cl B. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NKE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NKE are equal to 5.5%.

Life of production assets of 2.9 years is the average useful life of capital assets used in Nike Cl B operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NKE is equal to 13%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $12258 million for Nike Cl B - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1645.25 million for Nike Cl B is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Nike Cl B at the current share price and the inputted number of shares is $91.3 billion.


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Stock chart of NKE Financial statements of NKE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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