Question

Forecasting the Income Statement, Balance Sheet, and Statement of Cash Flows
Assume the following are the financial statements of Nike, Inc.

Consolidated Statements of Income
	Year ended May 31
In Millions	2011	2010
Revenues	$ 21,862	$ 20,014
Cost of sales	11,354	10,214
Gross profit	10,508	9,800
Demand creation expense	3,248	2,356
Operating overhead expense	4,345	3,970
Total selling and administrative expense	7,593	6,326
Interest expense (income), net	4	6
Other (income)	(33)	(49)
Income before income taxes	2,944	3,517
Income taxes	811	610
Net income	$ 2,133	$ 2,907

Balance Sheets
	May 31
In Millions	2011	2010
Assets
Cash and equivalents	$ 1,955	$ 3,079
Short-term investments	2,583	2,067
Accounts receivable, net	3,138	2,650
Inventories	2,715	2,041
Deferred income taxes	312	249
Prepaid expenses and other current assets	594	873
Total current assets	11,297	10,959
Property, plant and equipment, net	2,115	1,932
Identifiable intangible assets (net)	487	467
Goodwill	205	188
Deferred income taxes and other assets	894	873
Total assets	$ 14,998	$ 14,419
Liabilities and Shareholders' Equity
Current portion of long-term debt	$ 200	$ 7
Notes payable	187	139
Accounts payable	1,469	1,255
Accrued liabilities	1,985	1,904
Income taxes payable	117	59
Total current liabilities	3,958	3,364
Long-term debt	276	446
Deferred income taxes and other liabilities	921	855
Total liabilities	5,155	4,665
Common stock at stated value	3	3
Capital in excess of stated value	3,944	3,441
Accumulated other comprehensive income	95	215
Retained earnings	5,801	6,095
Total shareholders' equity	9,843	9,754
Total liabilities and shareholders' equity	$ 14,998	$ 14,419

We forecast Nike's income statement using the following forecast assumptions:

Revenue growth based on growth in revenues from 2010 to 2011	9%
Cost of sales/Revenues	51.9%
Demand creation expense/Revenues	14.9%
Operating overhead expenses/Revenues	19.9%
Income taxes/Income before income taxes	27.5%

Instructions: Forecast Nike's fiscal year 2012 income statement.

• Assume no change for: other income and interest expense.

• Round forecasts to $ millions.

• Do not use negative signs with your answers in the income statement.

Consolidated Statements of Income
($ millions)	2011	2012
Revenues	$21,862	Answer
Cost of sales	11,354	Answer
Gross profit	10,508	Answer
Demand creation expense	3,248	Answer
Operating overhead expense	4,345	Answer
Interest expense, net	4	Answer
Other income	33	Answer
Income before income taxes	2,944	Answer
Income taxes	811	Answer
Net Income	$ 2,133	Answer

We forecast Nike's balance sheet using the following forecast assumptions:

Accounts receivable/Revenues	14.4%
Inventories/Revenues	12.4%
Deferred income taxes/Revenues	1.4%
Prepaid expenses and other current assets/Revenues	2.7%
L-T deferred income taxes and other assets/Revenues	4.1%
Depreciation expense/Prior-year PPE, net (incl. in overhead)	17.3%
Amortization expense	$24
Accounts payable/Revenues	6.7%
Accrued liabilities/Revenues	9.1%
Income taxes payable/Revenues	0.5%
Deferred income taxes and other liabilities/Revenues	4.2%
Capital expenditures/Revenues	2.0%
Dividends/Net income	23.4%
Current portion of L/T debt due in 2013	$50

Instructions: Forecast Nike's fiscal year 2012 balance sheet.

• Assume no change for: short-term investments, goodwill, notes payable, common stock, capital in excess of stated value and accumulated other comprehensive income.

• Round forecasts to $ millions.

Balance Sheet
($ millions)	2011	2012
Assets
Cash and equivalents	$ 1,955	Answer
Short-term investments	2,583	Answer
Accounts receivable, net	3,138	Answer
Inventories	2,715	Answer
Deferred income taxes	312	Answer
Prepaid expenses and other current assets	594	Answer
Total current assets	11,297	Answer
Property, plant and equipment, net	2,115	Answer
Identifiable intangible assets, net	487	Answer
Goodwill	205	Answer
Deferred income taxes and other assets	894	Answer
Total assets	$14,998	Answer
Liabilities and Shareholders' Equity
Current portion of long-term debt	$ 200	Answer
Notes payable	187	Answer
Accounts payable	1,469	Answer
Accrued liabilities	1,985	Answer
Income taxes payable	117	Answer
Total current liabilities	3,958	Answer
Long-term debt	276	Answer
Deferred income taxes and other liabilities	921	Answer
Total liabilities	5,155	Answer
Common stock at stated value	3	Answer
Capital in excess of stated value	3,944	Answer
Accumulated other comprehensive income	95	Answer
Retained earnings	5,801	Answer
Total shareholders' equity	9,843	Answer
Total liabilities and shareholders' equity	$14,998	Answer

Instructions: Forecast Nike's fiscal year 2012 statement of cash flows.

Use negative signs with your answers below, when appropriate.

Nike's Forecasted Statement of Cash Flows
($ millions)	2012 Est.
Net income	Answer
Add: depreciation	Answer
Add: amortization	Answer
Change in Accounts receivable	Answer
Change in Inventories	Answer
Change in Deferred income taxes	Answer
Change in Prepaid expenses & other current assets	Answer
Change in LT Deferred income taxes & other assets	Answer
Change in Accounts payable	Answer
Change in Accrued liabilities	Answer
Change in Income taxes payable	Answer
Change in LT Deferred income taxes and other liabilities	Answer
Net cash from operating activities	Answer
Capital expenditures	Answer
Net cash from investing activities	Answer
Dividends	Answer
Payments of LT debt	Answer
Net cash from financing activities	Answer
Net change in cash	Answer
Beginning cash	Answer
Ending cash	Answer

Answer 1

Ans.

Nike's Forecasted Income Statement
($ millions)	2011	2012
Revenues	$ 21,862	$         23,830
Cost of sales	$ 11,354	$         12,368
Gross profit	$ 10,508	$         11,462
Demand creation expense	$    3,248	$           3,551
Operating overhead expense	$    4,345	$           4,742
Interest income, net	$           4	$                  4
Other income	$         33	$                33
Income before income taxes	$    2,944	$           3,198
Income taxes	$       811	$              880
Net income	$        2,133	$                 2,319

Nike's Forecasted Balance Sheet
($ millions)	2011	2012
Assets
Cash and equivalents	$1,955	$           3,150
Short-term investments	2,583	$           2,583
Accounts receivable, net	3,138	$           3,431
Inventories	2,715	$           2,955
Deferred income taxes	312	$              334
Prepaid expenses and other current assets	594	$              643
Total current assets	11,297	$         13,096
Property, plant and equipment, net	2,115	$           2,226
Identifiable intangible assets, net	487	$              463
Goodwill	205	$              205
Deferred income taxes and other assets	894	$              977
Total assets	$14,998	$         16,967
Liabilities and Shareholders' Equity
Current portion of long-term debt	$200	$                50
Notes payable	187	$              187
Accounts payable	1,469	$           1,597
Accrued liabilities	1,985	$           2,168
Income taxes payable	117	$              119
Total current liabilities	3,958	$           4,121
Long-term debt	276	$              226
Deferred income taxes and other liabilities	921	$           1,001
Total liabilities	5,155	$           5,348
Class B common stock	3	$                  3
Capital in excess of stated value	3,944	$           3,944
Accumulated other comprehensive income	95	$                95
Retained earnings	5,801	$           7,577
Total shareholders' equity	9,843	$         11,619
Total liabilities and shareholders' equity	$14,998	$         16,967

Nike's Forecasted Statement of Cash Flows
($ millions)	2012 Est.
Net income	$    2,319
Add: depreciation	$       366
Add: amortization	$         24
Change in Accounts receivable	$      (293)
Change in Inventories	$      (240)
Change in Deferred income taxes	$        (22)
Change in Prepaid expenses & other current assets	$        (49)
Change in LT Deferred income taxes & other assets	$        (83)
Change in current portion of Long term Debt	$      (150)
Change in Accounts payable	$       128
Change in Accrued liabilities	$       183
Change in Income taxes payable	$           2
Change in LT Deferred income taxes and other liabilities	$         80
Net cash from operating activities	$    2,264
Capital expenditures	$      (477)
Net cash from investing activities	$      (477)
Dividends	$      (543)
Payments of LT debt	$        (50)
Net cash from financing activities	$      (593)
Net change in cash	$    1,195
Beginning cash	$1,955
Ending cash	$        3,150

For refrence pls see the formulas applied as