Image source: Nike.
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Shoe and apparel giant Nike (NYSE: NKE) has gone from being a first mover in helping to build the specialty athletic footwear business to becoming a colossus that spans the globe with its products. With lucrative endorsements from high-profile athletes in every major sport, Nike continually has key players offering advertising in sporting events with billions of viewers, and the stock has generated impressive long-term returns that have rewarded longtime shareholders. Yet many people don't have a firm grip on exactly how much Nike is actually worth as a company. Below, we'll take a closer look at the net worth of Nike by several different measures to see whether the current share price is consistent with the athletic apparel company's true value.
The simplest measure of Nike's worth
The stock market gives the most obvious indication of a simple valuation of a company. Nike currently has about 1.35 billion shares of publicly traded stock outstanding. A price of around $56 per share puts the value of Nike's publicly traded shares at around $75 billion. However, Nike has non-traded Class A shares outstanding as well. When you add those in, Nike's total market capitalization rises to about $94 billion.
Some investors prefer to go beyond market cap to account differently for the impact of cash and debt held within a company's capital structure. Enterprise value looks only at the value of the actual business assets that go toward bringing in revenue and net income for a company. In Nike's case, the company's cash exceeds its debt, and its enterprise value puts Nike's worth at $91 billion.
What Nike reports as its worth on its balance sheet
Yet the stock market isn't the only reflection of a company's value. Financial statements also provide a picture that provides different insight on the value of corporate assets. For Nike, a look at the balance sheet reveals an accountant's perspective on the net worth of the company.
Nike's most recent financial statements put a value of about $21 billion on its assets. That includes almost $5.5 billion in cash and short-term investments, another $3 billion in accounts receivable, and more than $6 billion in inventory, prepaid expenses, and other current assets. In addition, Nike's plants, property, and equipment make up another $3.5 billion after taking accumulated depreciation into account. Goodwill and other intangibles account for just $400 million or so, and deferred tax assets and other assets make up about $2.4 billion.
Against those assets, Nike's liabilities are fairly modest. Debt amounts to about $2 billion, nearly all of which is in the form of long-term obligations. Accounts payable and accrued expenses account for about $4.6 billion, and deferred tax liability and other longer-term liabilities contribute nearly $2.5 billion more to the total. In all, Nike has $9.1 billion in liabilities on its balance sheet.
That leaves Nike with $12.25 billion in total shareholder equity. When you divide by the number of shares outstanding, Nike's book value comes out to about $7.25 per share. That's about an eighth of the company's stock price, showing the premium that investors put on the company above its accounting-based value.
Part of the reason for the difference is that Nike has value beyond what its balance sheet shows. One of Nike's most valuable assets is its brand. In its most recent annual survey of major global brands late last year, Interbrand ranked Nike No. 17 in the world, and the report valued the brand alone at $23.1 billion, up 16% from year-earlier levels. Nike spends a lot to maintain its brand image, but the accumulated value from past efforts will help drive business for years to come, and that's something that shareholders reflect in market capitalization but that accounting statements can't account for fully.
Is Nike worth what investors think it is?
Finally, looking at comparable companies is one way to look at Nike's value. Blue-chip companies that are leaders in their industries sometimes deserve higher valuations, but it's still useful to know relative value that the market has assigned to different players in an industry.
For Nike, the stock's current valuation is actually less than those of some of its smaller peers in the athletic apparel industry, as you can see below:
Data source: Yahoo! Finance.
Nike is by far the largest of the three, and so it's reasonable for its growth rate to be slower than those of its smaller competitors. Under Armour in particular has challenged Nike's dominance of the industry, but it still has a long way to go if it wants to catch up with Nike. From a valuation perspective, Nike's lower earnings multiple reflects its slightly weaker prospects for growth. Yet even when you take company size out of the picture, Nike's expected growth is still strong compared to what most mature industry leaders can post.
Nike is at the forefront of a huge trend toward more health-conscious living, and its products are in prime position to profit from greater demand. Even with companies like Under Armour looking to eat into its leadership position in the industry, Nike's value reflects the potential it has to keep growing well into the future.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica, Nike, and Under Armour (A Shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.