Nike Case Essay

598 Words3 Pages
We can estimate some assumptions in the discounted cash flow on growth of Nike. These assumptions will influence the whole calculation. If the revenue growth improves to 7%, there will be a huge impact happen to the future sales growth. We are able to use the WACC which is 11.51% to get the new equity value. In that case, we can get the new equity value per share. We follow the same trend of growth, but use a higher initial rate instead. The initial growth rate was made to 8%, instead of 7%. As the growth trend is the same and other things are constant, WACC will cause the increase of the equity value per share. With the calculated WACC, the initial rate must be at least 7.96% to determine whether to purchase the stocks. Since the revenue has increased, the profit margin will have changes as well. The profit margin equals to Net Income divided by Sales. The Net Income increases as the revenues increasing. In that case, whether the efficiency improves or not is determined by the sales. If the sales decrease, it is unfavorable for the firm’s development. The profit margin won’t have too much change. Even the efficiency changes, it won’t alter a lot. Maybe, decreasing in efficiency will play a great probability. On the other hand, if the sales rise, with the increasing net income, the profit margin will have an obvious increase. The efficiency will go up, too. Among the other drives, we can change some of them to alter the value of the firm. Management can decrease the COGS/Sales ratio in order to increase the effect on cash flow, which will attract more purchases of the stock. If the sales ratio deducts to 10%, the revenue remains the same, while other data like NOPAT, Operating Income and FCF all go up. The equity value ascends. Since the # shares outstanding are constant, which are 271.5, the equity value per share rises as well. If the sales ratio turns into

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