Balance sheets and income statements for Nike, Inc., and Adidas Group follow. Refer to these financial statements to answer the requirements.

REQUIRED:

a. Compute return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL) for Nike and Adidas in the most recent year. The corporate tax rate in Germany, where Adidas is headquartered, is about 30%. Assume a tax rate of 25% for Nike.

b. Disaggregate the ROA's computed into profit margin (PM) and asset turnover (AT) components. Which of these factors drives ROA for each company?

c. Compute the gross profit margin (GPM) and operating expense-to-sales ratios for each company. How do these companies' profitability measures compare?

d. Compute the accounts receivable turnover (ART), inventory turnover ( INVT), and property, plant, and equipment turnover (PPET) for each company. How do these companies' turnover measures compare?

e. Nike's fiscal year ends on May 31, 2018, while Adidas's fiscal year ends on December 31, 2017 (a difference of seven months). How does this difference affect your analysis of ROE and ROA for these two companies?
f. Nike's financial statements are prepared in accordance with U.S. GAAP, while Adidas, a
German company, follows IFRS rules. How does this difference in financial reporting standards
affect your comparison of these companies' financial statements?

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ADIDAS GROUP, AG Balance Sheets NIKE, INC. Balance Sheets ($ millions) May 31, (€ millions) December 31, 2018 2017 2017 2016 Assets Current assets: Cash and cash equivalents $ 4,249 $ 3,808 € 1,598 € 1,510 Short-term investments . 996 2,371 398 734 Accounts receivable, net 3,498 3,677 2,315 2,200 ... Inventories ..... 5,261 5,055 3,693 3,764 Prepaid expenses and other current assets.. Total current assets ..... Property, plant, and equ pment, net.. Goodwill and identifiable intangible assets, net... 1,130 1,150 641 678 .... 8,886 1,915 3,259 1,116 15,134 4,454 16,061 3,989 8,645 2,000 439 422 2,684 Deferred income taxes and other assets 2,509 2,787 1,193 Total assets .. $22,536 $23,259 €14,522 €15,176 Liabilities and shareholders' equity Current liabilities: Short-term debt.... Accounts payable.. 342 $ 331 $ 2,279 3,269 € 136 € 636 .... 2,048 2,337 2,697 2,596 Accrued liabilities.. 3,011 2,921 Income taxes payable. Other current liabilities. 150 84 424 402 473 434 Total current liabilities. 6,040 5,474 6,291 6,765 Long-term debt. ... 3,468 3,471 1,005 1,004 Other noncurrent liabilities 3,216 1,907 791 952 Total shareholders' equity.. 9,812 12,407 6,435 6,455 Total llabilities and shareholders' equity.. $22,536 $23,259 €14,522 €15,176 ....