Nike-Basic Ratio Analysis

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Nike, !ne. designs, develops, and markets, both domestical/y and international/y, a wide variety of athletic and
leisure footwear and apparel for competitive and recreational uses. 1Vike is based in Beaverton, Oregon.

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Refer to the 1995 Consolidated Financia! Statements ofNike, Inc.

a. In general, what do measures of solvency and profitability represent? Why núght users of Nike's
financia! statements calculate such measures?
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b. Using the infoimation in Nike's 1995 financia! statements, compute the following (note that at May
31, 1993, total shareholders' equity was $1,642,819 and total assets were $2,186,269):
. . . Current Assets
1. Ctment rat10 at May 31, 1995 and 1994. The cnrrent rat10 1s defined as: e L' b'I' .
urrent ra 1 ihes
ii. Working capital at May 31, 1995 and 1994. Working capital is defined as:
curren/ assets less curren/ liabilities.
iii. Gross margin percent for 1995 and 1994. Gross margin percent IS defined
Sales - Cost o/Goods Sold
as: S xl 00 .
aIes
1v. Retum on equity for fiscal 1995 and 1994. Retum on equity IS defined
Net Income - Preferred Dividends . . .
as:-'=:...:::.:==-======='- . Note: the exact amount of prefen-ed d1v1dends 1s not
Average Common Shareho/ders' Equity
provideci: Ass]Jme that there were no prefen-ed dividends in 1995 and 1994.
v. Retum on assets for fiscal 1995 and 1994. Retum on assets is defined as:
Net Income + Interest Expense (1 - tax rate)
Average Total Assets

c. Did Nike eam more or less income in 1995 than in 1994? Use the financia! statements to detelTIIÍne
the major reasons for the change.
d. Was Nike more or less profitable in 1995 than in 1994? By how much? (Hint: Simply comparing net
income year to year ignores the changing leve! of assets or shareholders' equity used to generate the
income. To detelTIIÍne whether Nike's profitability changed, determine whether Nike's retum on
assets increased or decreased and whether retum on equity increased or decreased.)
e. How much cash did Nike have at May 31, 1995?
f. · Was Nike in a position to pay its short-term obligations al May 31, 1995? (Hint: what was Nike's
curren! ratio at May 31, 1995?) Did Nike have positive working capital?
g. Were Nike's operations a sonrce ar a use of cash in fiscal 1995?
h. What were Nike's majar sources and uses of cash in fiscal 1995?

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© Copyright 2001 by Prentice Hall, !ne. Ali rights resen•c.d. No parto/ this publication may be reproduced j;¡ m1y fo,111 far a11y purpose
witlto11t the 1;,ri!ten pem1issio;¡ ofthc publisher.
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NIKE, INC,
CONSOLIDATED BALANCE SHEET
(In Thousands) May 31

1995 1994
Assets ,,
,·¡
Current Assets:
Cash and equivalents $ 216,071 $ 518,816
Accounts receivable, less allowance
for doubtful accounts of $ 32,663
and $ 28,291 1,053,237 703,682
Inventories (Note 2) 629,742 470,023
Deferred income taxes {Note 6) 72,657 37,603
Prepaid expenses 74 221 40 307

Total current assets 2,045,928 1,770,431

Property, plant and equipment,

net (Notes 3 and 5) 554,879 405,845
Goodwill (Note 1) 495,907 163,036
Other assets 46,031 34,503

$3 l 12 715 s2 3:Z3 81 5

Liabilities and Shareholders' Equity

Current Liabilities:
Current portian of long-term debt {Note 5) $ 31,943 $ 3,857
Notes payable (Note 4) 397,100 127,378
Accounts payable (Note 4) 297, 656 210,576
Accrued liabilities 345,224 181,889
Income taxes payable 35,612 38,287

Total current liabilities 1,107,535 561,987

Long-term debt (Notes 5 and 13) 10,565 12,364

Non-current deferred income taxes (Note 6) 17,789 18,228
Other non-current liabilities (Note 1) 41,867 39,987
Commitments and contingencies (Notes 11 an 14)

Redeemable Preferred Stock (Note 7) 300 300

Shareholders' equity (Note 8):

Common Stock at stated value:
Class A convertible-25,895 and 26,679
shares outstanding 155 159
Class B-45,550 and 46,521 shares
out standing 2,698 2,704
Capital in excess of stated value 122,436 108,284
Foreign currency translation adjustment 1,585 (15,123)
Retained earnings 1 837 815 1 644,925

1,964,689 1,740,949

s3.1g2 715 s2 3:z3 875

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The accompanying notes to consolidated financial statements are an integrat part of
this statement.

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Nil<í;---~B iisii: Ralló Analysis . 1
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NIKE, INC.
CONSOLIDATED STATEMENT OF INCOME
Year Ended May 31

1995 1994 1993

(In Thousands, Except Per Share Data)

Revenues $4,760,834 $3,789,668 $3,930,984

Costs and expenses:
Cost of sales 2,865,280 2,301,423 2,386,993
Selling and administrative 1,209,760 974,099 922,261
Interest {Notes 3, 4 and 5) 24,208 15,282 25,739
Other (income)/expense, net
(Notes 1, 9 and 10) 11 722 8 270 1,475

4,110,970 3,299,074 3,336,468

Income befare income taxes 649,864 490,594 594,516

Income taxes (Note 6) 250,200 191,800 229,500

Net income $ 399,664 $ 298 791 $ 365 QJ6

Net income per common share (Note 1) $===5~4~4'=='$'==="3"='9é!;6b"1$===~4,,,7.,4~

Average number of common and comrnon

equivalent shares {Note 1) 73 503 75 456 77,063

The accompanying notes to consolidated financial statements are an·integral part of this
statement.

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- - Nik.,::.:.'sasic RatioAnalysii
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NIKE, INC.
CONSOLIDATED STATEMENT OF CASH FLO\'IS
Year Ended May 31 (In Thousands) 1995 1994 1993

Cash Provided (Used) by Operations:

Net income $ 399,664 $ 298,794 $ 365,016
Income charges {credits) not affecting cash:
Depreciation 71,113 64,531 60,393
Deferred income taxes and purchased
tax benefits (24, 668) (23,876) 4,310
Other non-current liabilities (1,359) (3,588) 19,847
Other, including amortization 19,125 8,067 12,951
Changes in certain working capital
components:
{Increase) decrease in inventory (69,676) 160,823 (97,471)
(Increase) decrease in accounts
receivable (301,648) 23,979 (62,538)
(Increase) decreasa in other current
assets (10,276) 6,888 (5,133)
Increase {decrease) in accounts
payable, accrued liabilities and
income taxes payable 172 638 40 845 (32 083)

Cash provided by operations 254,913 576,463 265,292

Cash Provided (Used) by Investing Activities:

Additions to property, plant and
equipment (154,125) (95,266) (97,041)
Disposals of property, plant and
equiprnent 9,011 12,650 5,006
Acquisition of subsidiaries:
Identifiable intangible assets & Goodwill (345,901) (2,185) (52,003)
Net assets acquired (84,119) (1,367) (25,858)
Additions to other non-current assets (6 260) (5 450) (3,036)

Cash used by investing activities (581,394) (91,618) (172,932)

Cash Provided (Used) by Financing Activities:

Additions to long-term debt 2,971 6,044 1,536
Reductions in long-term debt including
current po~tion (39,804) (56,986) (5,817)
Increase (Decrease) in notes payable 263,874 (2,939) (2,017)
Proceeds from exercise of options 6,154 4,288 7,055
Repurchase of stock (142,919) (140,104)
Dividends-common and preferred (65,418) (60 282) (53 017)

Cash provided/(used) by financing activities 24,858 (249,979) (52,260)

Effect of exchange rate changes on cash (1,122) (7,334) 8,866

Net increase in cash and equivalents (302, 745) 227,532 31,234

Cash and equivalents, beginning of year 518,816 291,284 260, o,50

Cash and equivalents, end of year $ 216 071 S 518 876 S 291,284