Question

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

Consolidated Statements of Income
	Year ended May 31
In Millions	2011	2010
Revenues	$ 20,862	$ 19,014
Cost of sales	11,354	10,214
Gross profit	9,508	8,800
Demand creation expense	2,448	2,356
Operating overhead expense	4,245	3,970
Total selling and administrative expense	6,693	6,326
Interest expense (income), net	4	6
Other (income)	(33)	(49)
Income before income taxes	2,844	2,517
Income taxes	711	610
Net income	$ 2,133	$ 1,907

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	10%
Cost of sales/Revenues	54.4%
Demand creation expense/Revenues	11.7%
Operating overhead expenses/Revenues	20.3%
Income taxes/Income before income taxes	25.0%

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	$20,862	$Answer
Cost of sales	11,354	Answer
Gross profit	9,508	Answer
Demand creation expense	2,448	Answer
Operating overhead expense	4,245	Answer
Interest expense, net	4	Answer
Other income	33	Answer
Income before income taxes	2,844	Answer
Income taxes	711	Answer
Net Income	$ 2,133	$Answer

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

Accounts receivable/Revenues	15.0%
Inventories/Revenues	13.0%
Deferred income taxes/Revenues	1.5%
Prepaid expenses and other current assets/Revenues	2.8%
L-T deferred income taxes and other assets/Revenues	4.3%
Depreciation expense/Prior-year PPE, net (incl. in overhead)	17.3%
Amortization expense	$24
Accounts payable/Revenues	7.0%
Accrued liabilities/Revenues	9.5%
Income taxes payable/Revenues	0.6%
Deferred income taxes and other liabilities/Revenues	4.4%
Capital expenditures/Revenues	2.1%
Dividends/Net income	26.0%
Current portion of L/T due in 2013	$48

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 stastement of cash flows.

Remember to 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

Consolidated Statement of Income
$ In Millions	2011	2012
Revenues	20,862	22,948
Cost of Sales	11,354	12,484
Gross Profit	9,508	10,464
Demand Creation Expense	2,448	2,685
Operating Overhead Expense	4,245	4,658
Interest Expense, net	4	4
Other Income	33	33
Income before Taxes	2,844	3,150
Income Taxes	711	788
Net Income	2,133	2,362

Balance Sheet
$ In Millions	2011	2012
Assets
Cash and Equivalents	1,955	3,107
Short Term Investments	2,583	2,583
Accounts Receivable, Net	3,138	3,442
Inventories	2,715	2,983
Deferred Income Taxes	312	344
Prepaid Expenses and Other Current Assets	594	643
Total Current Assets	11,297	13,102
Property, Plant and Equipment, net	2,115	2,231
Identifiable Intangible Assets, net	487	511
Goodwill	205	205
Deferred Income Taxes and Other Assets	894	987
Total Assets	14,998	17,036
Liabilities and Shareholders' Equity
Current Portion of Long Term Debt	200	48
Notes Payable	187	187
Accounts Payable	1,469	1,606
Accrued Liabilities	1,985	2,180
Income Taxes Payable	117	138
Total Current Liabilities	3,958	4,159
Long Term Debt	276	276
Deferred Income Taxes and Other Liabilities	921	1,010
Total Liabilties	5,155	5,445
Common Stock at Stated Value	3	3
Capital in Excess of Stated Value	3,944	3,944
Accumulated and Other Comprehensive Income	95	95
Retained Earnings	5,801	7,549
Total Shareholders' Equity	9,843	11,591
Total Shareholders' Equity and Liabilities	14,998	17,036

Nike's Forecasted Statement of Cashflows
($ millions)	2012 Est
Net Income	2,362
Add : Depreciation	366
Add : Amortization	24
Change in Accounts Receivable	-          304
Change in Inventories	-          268
Change in Deferred Income Taxes	-            32
Change in Prepaid Expenses and Other Current Assets	-            49
Change in LT Deferred Income Taxes and Other Assets	-            93
Change in Accounts Payable	137
Change in Accrued Liabilities	195
Change in Income Tax Payable	21
Change in LT Deferred Income Taxes and Other Liabilities	89
Net Cash from Operating Activities	2,448
Capital Expeditures	-          482
Net Cash from Investing Activities	-          482
Dividends	-          614
Payments of LT Debt	-          200
Net Cash from Financing Activities	-          814
Net Change in Cash	1,152
Beginning Cash	1,955
Ending Cash	3,107

workings:

1. Depreciation = 2115 * 17.3% = 366

2. Dividend = 2362 *26% = 614

3.

Opening Retained Earnings	5,801
Add: Net Income	2,362
Less: Dividend Paid	614
Closing Retained Earnings	7,549

4. Capital Expenditure : 22948 * 2.1% = 482