Investigation 10 Growth Toys R Us example essay topic

NIKE, INC vs. TOYS R US April 17, 2005 CONTENTS PageLIST OF ILLUSTRATIONS... 2 INTRODUCTION... 4 Procedures... 4 COMPANIES...

4 COMPARISONS... 7 GROWTH... 9 CONCLUSION AND RECOMMENDATIONS... 11 REFERENCES... 12 LIST OF ILLUSTRATIONS Figure Page 1. Comparisons Chart- 'The Company'...

82. Growth Chart- NIKE, INC... 93. Growth Chart- TOYS R US, INC...

104. Revenue Chart... 11 Investigation 4 INTRODUCTION EC = 2 Consultants was contracted to locate and research two companies for purchase or takeover by the XYZ Investment Syndicate. EC = 2 has a solid reputation in the Eastern United States for providing this type of service.

For the XYZ Investment Syndicate, EC = 2 has identified NIKE, INC and TOYS R US as meeting the criteria for purchase or takeover. These companies were chosen based on their location, history, leadership, market position and growth potential. Procedures Methodology: To prepare this report, the staff of EC = 2 gathered most of the information from the Internet, especially the companies' Web pages. In addition, the staff obtained annual reports from the companies and data from both the NYSE and NASDAQ Web pages.

Personnel: EC = 2 has been providing consulting services in the East for the past 25 years. Our staff includes: a former CEO, four CPAs, three MBAs, and a full complement of research assistants. Schedule: The final copy of the report will be submitted on or before April 18, 2005 for your review and evaluation. THE COMPANIES NIKE, INC {NYSE-NIKE} History: NIKE, Inc. is engaged in the design, development and worldwide marketing of footwear, apparel, equipment and accessory products. The Company sells its products to retail accounts and through a mix of independent distributors, licensees and subsidiaries in over 120 countries around the world.

NIKE's athletic footwear products are designed primarily for specific athletic use, although some of its products are worn for casual or leisure purposes. The Company creates designs for men, women and children. Running, basketball, children's, cross-training and women's shoes are the Company's top-selling product categories. NIKE also markets shoes designed for outdoor activities, tennis, golf, Investigation 5 NIKE, INC (cont) soccer, baseball, football, bicycling, volleyball, wrestling, cheer leading, aquatic activities, hiking and other athletic and recreational uses. The total cash per share is 6.25.

Locations: Beaverton, OR Officers: Philip Knight, 66 Chairman 4.22 M William Perez, 57 Pres, Chief Exec. Officer, N / A Donald Blair, 46 Chief Financial Officer, VP N / A Charles Denson, 48 Pres of the Nike Brand 3.23 MProducts or Services: Footwear, apparel, equipment and accessory products. Competitors: Adidas, Fila, Reebok, Keds Investigation 6 TOYS R US History: Toys R Us, Inc. is a specialty retailer of toys, baby products and children's apparel. As of January 31, 2004, the Company operated 1,501 retail stores worldwide. These consisted of 927 locations in the United States, 685 toy stores (including four Geoffrey stores), 198 specialty baby-juvenile stores under the name Babies R Us, and 44 children's clothing stores under the name Kids R Us.

Toys R Us also sells merchandise through its Internet sites at web web web web and web All of the Kids R Us stores will close during 2004. The total cash per share is 3.48. Locations: Wayne, NJ 07470 Officers: John Euler, Jr., 56 Chairman, $3.70 M Richard Markee, 49 Vice Chairman, $3.05 M Raymond Arthur, 45 Chief Financial Officer, N / A Elliott Wahl e, 52 Pres - Babies / Kids R Us, $1.91 MProducts or Services: Toys, baby products and children's apparel. Competitors: Target, Walmart, Ross, KB Toys Investigation 7 COMPARISONS The following chart is a ratio comparison with the following headlines: The Price-to-Earnings (P / E) ratio is the single most widely used measure of a stock's value. That's because the key to stock ownership is the shareholder's stake in a portion of the company's profit stream. The P / E ratio is given for the Trailing Twelve Months (TTM).

The P / E High and Low for the last 5 years is included for context. Beta measures stock price volatility relative to the overall stock market. We use the S&P 500 as a proxy for the market and we automatically define its Beta as being 1.00. A higher beta indicates that a stock is relatively volatile while a lower beta indicates more stability. A stock with a Beta of 0.90 would, on average, be expected to rise or fall only 90% as much as the market.

So if the market dropped 1.0%, such a stock might rise or fall 0.9% On the other hand, a stock with a Beta of 1.10 would, on average, rise or fall 10% more than the market. So a 1.0% market move, up or down, should spur a 1.1% move for the stock. Price to Sales is generally used to evaluate companies that don't have earnings and don't pay dividends. For these companies, you may consider that high multiples of sales and high growth rates suggest optimistic future earnings expectations on the part of investors. Price to Book is a theoretical comparison of the value of the company's stock to the value of the assets it owns free and clear of debt. Classical financial theory suggests that book value is a proxy for the proceeds that would be realized if the company was to be liquidated by selling all of its assets and paying all of its debt.

The Dividend Yield is calculated by dividing the annual dividend per share by the price of the stock. Obviously, this information is of considerable importance to those who are looking for income. But even if income is not a significant goal for you, it is still possible to gain some interesting insights from the Dividend table. The ratios shown in Management Effectiveness Comparison Report are widely regarded as the ultimate measure of corporate performance. By combining the concepts of margin and turnover, they let you make direct comparisons between vastly different businesses.

For example, you cannot properly compare a grocery chain to a furniture manufacturer in terms of margin or turnover. But you can make such a comparison based on the ratios presented here. All of the Management Effectiveness Ratios are calculated for the Trailing Twelve Month (TTM) time period and over a 5 Year Average. Investigation 8 COMPARISONS (cont) NIKE, INC v.'s TOYS R US Valuation Ratios Company Industry Sector S&P 500 P / E Ratio (TTM) 17.61 36.51 16.99 28.56 15.92 25.93 20.83 20.83 P / E High- Last 5 Yrs. 27.50 66.19 34.40 48.49 36.32 43.94 41.15 41.15 P / E Low - Last 5 Yrs. Avg.

Avg. Investigation 9 GROWTH NIKE, INCProfitability Ratios Profitability Ratios (%) Company Industry Sector S&P 500 Gross Margin - 5 Yr. Avg. 40.42 40.26 29.49 46.11 Operating Margin - 5 Yr. Avg. 10.51 10.18 7.31 18.45 Net Profit Margin - 5 Yr.

Avg. 6.81 6.58 4.26 11.54 Growth Rates Growth Rates (%) Company Industry Sector S&P 500 Sales (MRQ) vs. Qtr. 1 Yr. Ago 13.92 14.09 13.44 17.05 Sales (TTM) vs. TTM 1 Yr. Ago 14.93 13.66 12.96 15.55 Sales - 5 Yr.

Growth Rate 6.90 7.47 6.68 9.56 EPS (MRQ) vs. Qtr. 1 Yr. Ago 36.13 38.09 17.44 16.61 EPS (TTM) vs. TTM 1 Yr. Ago 30.50 30.52 23.02 23.21 EPS - 5 Yr. Growth Rate 17.49 22.33 6.54 13.47 Capital Spending - 5 Yr.

Growth Rate -11.05 -7.62 -0.75 4.2 Figure 2 NIKE's figures are superior to TOYS R US. Investigation 10 GROWTH (cont) TOYS R US, INCProfitability Ratios Profitability Ratios (%) Company Industry Sector S&P 500 Gross Margin - 5 Yr. Avg. 31.01 40.98 42.25 46.11 Operating Margin - 5 Yr. Avg. 3.28 9.07 11.19 18.45 Net Profit Margin - 5 Yr.

Avg. 1.86 5.60 6.98 11.54 Growth Rates Growth Rates (%) Company Industry Sector S&P 500 Sales (MRQ) vs. Qtr. 1 Yr. Ago -1.43 20.02 12.85 17.05 Sales (TTM) vs. TTM 1 Yr.

Ago -0.59 20.22 15.28 15.55 Sales - 5 Yr. Growth Rate 0.70 24.84 14.60 9.56 EPS (MRQ) vs. Qtr. 1 Yr. Ago NM 25.07 11.91 16.61 EPS (TTM) vs. TTM 1 Yr. Ago -22.82 29.52 22.09 23.21 EPS - 5 Yr.

Growth Rate -22.60 46.19 12.15 13.47 Capital Spending - 5 Yr. Growth Rate -7.25 2.34 5.28 4.29 Figure 3 TOYS R US figures are less advanced to NIKE. Investigation 11 CONCLUSION AND RECOMMENDATIONS I recommend NIKE, INC to be the company for a possible buy-out or take-over. This company is financially sound, the stock is not too high-priced, and the prospects for growth are good. The comparison charts reflect that NIKE is financially in a better place than TOYS R US, INC. The profitability ratios are significantly superior to TOYS R US.

The following chart displays the revenue from the company's income statement. As such NIKE has a much higher cost of revenue and would better the better choice for a take over. Investigation 12

Bibliography

Yahoo: Finance. Income Statement web (April 2005) Yahoo: Finance.
Quotes and Info web (April 2005) Reuters: Ratios.
Valuation Ratios web (April 2005) NASD: Investor Information web (April 2005) NIKE: Company Information web (April 2005) TOYS R US: Company Information web (April 2005).