Question

Using the Annual Report of Nike:

https://finance.yahoo.com/quote/nke/financials/

1) What is the breakdown of the company's current liabilities at year end?

2) Calculate the company's times-interest-earned ratio for the year end. What does this tell you about the company?

3) How much was the company's long-term debt at year end?

4) Compute the company's debt to equity ratio at year end. How does it compare to the industry?

5) What does this tell you about the company?

Answer 1

Financial Year - June/01/ 2016 to May/31/2017

Breakdown of the current liabilities at year end:

Current liabilities: Amount (In millios)

Current portion of long-term debt $6

Notes payable - Commercial paper $325

Accounts payable $2,048

Accrued liabilities $3,011

Income taxes payable $84

Total current liabilities $5,474

2. Times-interest-earned ratio for the year end:

Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments.

Times interest earned = Earnings before interest and taxes ÷ Interest expense

= 4,749,000 million ÷ $86,000 million

= 55.22 times or 55.22 :1

The ratio is indicating that the company is generating enough cash from its operations EBIT to meet its interest obligations.

3. company's long-term debt at year end = $3,471 million

4. Debt to equity ratio at year end:

Debt equity ratio = long term liabiliites ÷ share holders equity

or

(Current Portion of Long-Term Debt

+

Long-Term Debt & Capital Lease Obligation)

/

Total Stockholders Equity

= ($6 + $3,471 million ) ÷ $12,407 million

= 0.28:1 or 28%

The above ratio indicating that the portion of assets provided by stockholders is greater than the portion of assets provided by creditors.