Yahoo Finance NIKE Inc (NYSE:NKE): Financial Strength Analysis
Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider NIKE Inc (NYSE:NKE). With a market valuation of US$123.0b, NKE is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for NKE to determine is solvency and liquidity and whether the stock is a sound investment.
Check out our latest analysis for NIKE
How does NKE’s operating cash flow stack up against its debt?
NKE’s debt levels have fallen from US$3.8b to US$3.5b over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, NKE currently has US$4.3b remaining in cash and short-term investments , ready to deploy into the business. Moreover, NKE has generated cash from operations of US$5.7b in the last twelve months, resulting in an operating cash to total debt ratio of 163%, indicating that NKE’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NKE’s case, it is able to generate 1.63x cash from its debt capital.
Does NKE’s liquid assets cover its short-term commitments?
At the current liabilities level of US$6.7b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.31x. Usually, for Luxury companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can NKE service its debt comfortably?
With debt at 39% of equity, NKE may be thought of as appropriately levered. This range is considered safe as NKE is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether NKE is able to meet its debt obligations by looking at the net interest coverage ratio. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For NKE, the ratio of 95.37x suggests that interest is comfortably covered. Large-cap investments like NKE are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
NKE’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how NKE has been performing in the past. I recommend you continue to research NIKE to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NKE’s future growth? Take a look at our free research report of analyst consensus for NKE’s outlook.
Valuation: What is NKE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether NKE is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
