Question

Financial Statement Analysis

The financial statements for Nike, Inc., are presented in Appendix D . Use the following additional information (in thousands):

Accounts receivable at May 31, 2014: $3,117
Inventories at May 31, 2014: 3,947
Total assets at May 31, 2014: 18,594
Stockholders’ equity at May 31, 2014: 12,000

1. Determine the following measures for the fiscal years ended May 31, 2016, and May 31, 2015. Do not round interim calculations. Round the working capital amount in part (a) to the nearest dollar. Round all other final answers to one decimal place. When required, use the rounded final answers in subsequent computations.

NIKE, Inc. Consolidated Statements of Income Year Ended May 31, (In millions, except per share data)

2016 2015 2014

Revenues $ 32,376 $ 30,601 $ 27,799

Cost of sales 17,405 16,534 15,353

Gross profit 14,971 14,067 12,446

Demand creation expense 3,278 3,213 3,031

Operating overhead expense 7,191 6,679 5,735

Total selling and administrative expense 10,469 9,892 8,766

Interest expense (income), net 19 28 33

Other (income) expense, net (140) (58) 103

Income before income taxes 4,623 4,205 3,544

Income tax expense 863 932 851

NET INCOME $ 3,760 $ 3,273 $ 2,693

Earnings per common share: Basic $ 2.21 $ 1.90 $ 1.52

Diluted $ 2.16 $ 1.85 $ 1.49

Dividends declared per common share $ 0.62 $ 0.54 $ 0.47

NIKE, Inc. Consolidated Balance Sheets May 31, (In millions)

2016 2015

ASSETS

Current assets:

Cash and equivalents $ 3,138 $ 3,852

Short-term investments 2,319 2,072

Accounts receivable, net 3,241 3,358

Inventories 4,838 4,337

Prepaid expenses and other current assets 1,489 1,968

Total current assets 15,025 15,587

Property, plant and equipment, net 3,520 3,011

Identifiable intangible assets, net 281 281

Goodwill 131 131

Deferred income taxes and other assets 2,439 2,587

TOTAL ASSETS $ 21,396 $ 21,597

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt $ 44 $ 107

Notes payable 1 74

Accounts payable 2,191 2,131

Accrued liabilities 3,037 3,949

Income taxes payable 85 71

Total current liabilities 5,358 6,332

Long-term debt 2,010 1,079

Deferred income taxes and other liabilities 1,770 1,479

Commitments and contingencies Redeemable preferred stock — —

Shareholders’ equity:

Common stock at stated value:

Class A convertible — 353 and 355

shares outstanding — —

Class B — 1,329 and 1,357

shares outstanding 3 3

Capital in excess of stated value 7,786 6,773

Accumulated other comprehensive income 318 1,246

Retained earnings 4,151 4,685

Total shareholders’ equity 12,258 12,707

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 21,396 $ 21,597

	Fiscal Year   2016		Fiscal Year   2015
a.	Working capital (in millions)	$		$
b.	Current ratio
c.	Quick ratio
d.	Accounts receivable turnover
e.	Number of days' sales in receivables		days		days
f.	Inventory turnover
g.	Number of days' sales in inventory		days		days
h.	Ratio of liabilities to stockholders' equity
i.	Asset turnover
j.	Return on total assets		%		%
k.	Return on common stockholders' equity		%		%
l.	Price-earnings ratio, assuming that the market price was $54.90 per share on May 29, 2016, and $52.81 per share on May 30, 2015.
m.	Percentage relationship of net income to sales		%		%

Answer 1

Answer to Part a.
Working Capital = Current Assets – Current Liabilities

Year 2016:
Working Capital = $15,025 Million - $5,358 Million
Working Capital = $9,667 Million

Year 2015:
Working Capital = $15,587 Million - $6,332 Million
Working Capital = $9,255 Million

Answer to Part b.
Current Ratio = Current Assets/ Current Liabilities

Year 2016:
Current Ratio = $15,025 /$5,358
Current Ratio = 2.80: 1

Year 2015:
Current Ratio = $15,587 /$6,332
Current Ratio = 2.46: 1

Answer to Part c.
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses)/ Current Liabilities

Year 2016:
Quick Ratio = ($15,025 - $4,838 - $1,489) /$5,358
Quick Ratio = $8,698 / $5,358
Quick Ratio = 1.62: 1

Year 2015:
Quick Ratio = ($15,587 - $4,337 - $1,968) /$6,332
Quick Ratio = $9,282 / $6,332
Quick Ratio = 1.47: 1

Answer to Part d.

Accounts Receivable Turnover = Sales / Average Account Receivable

Year 2016:
Average Account Receivable = ($3,241 + $3,358) / 2
Average Account Receivable = $3,299.50

Accounts Receivable Turnover = 32,376 / 3,299.50
Accounts Receivable Turnover = 9.81 times

Year 2015:
Average Account Receivable = ($3,358 + $3,117) / 2
Average Account Receivable = $3,237.50

Accounts Receivable Turnover = 30,601 / 3,237.50
Accounts Receivable Turnover = 9.45 times