P4-31. Compute and Interpret Liquidity, Solvency, and Coverage Ratios NIKE, INC. Information from the balance sheet, income statement, and statement of cash flows for Nike follows.

(NKE) Refer to these financial statements to answer the requirements .

NIKE, INC.
Consolldated Statements of Income Year Ended May 31 (in milllons)
Revenues ................. . ....... . .. .. .. . ... .. . .. ............... .
Cost of sales ... . . .. .. .. .. ...... . ......... .•. ...... . .. .. .. .. . ...... .
Gross profit ................ ... .. . . .. .. • . . . ... .. .. ....... . ........
Demand creation expense .... .. ... • ..•.... •. .• . .... ... . .. . ...........
Operating overhead expense . ................ .. . . ...... ...... . . .... .. .
To tal selling and administ rative expense .. . ... . .. . .. . ... ... . .. . ....... .
Interest expense (income) , net. .. . .. .. .. . .. . .. .. .. .• . . . .. .. . ... . .. .. .. •
Other (income) expense, net ....... . ...... . .. .. .. . • .. • ... .•..•. . ..... •
Income before income taxes .. .... . .. . ... . ..... .. . •. . • .. .. • . . • ...... . .
Income tax expense .. . ...... .. ... . ..... . ... .. . ..... . .. .. •. . • .... . .. .
Net income . .......... ........... . . ......... . .. . .. .. .. .. . ...... .. .
May 31 (in millions)
Assets Current assets NIKE, INC.
Consolidated Balance Sheets Cash and equivalents . ..................... ... ..... .. ......... . .. . .
Short-term investments ........ . . ........... . ...... ... .. ........ . .. .
Accounts receivable, net. . .......... . .......... .. .. .. ... .... .. ..... .
Inventories . . ...... . ....... .. .. .. . .. .. ........... .. .. .. ..... . .. . .
P repaid expenses and othe r curre nt assets ..... . .. ... . .. . ..... ... . . . . . .
Total cu rrent assets . . .......... .. . . .... . . . . . .. . ...... . . ... . . .. . . .
Property , plant, and equ ipment , net . .. • . .• .. • .... • . .. . ....... . .. .. ......
Identifiable intan gible assets, net . .. ..•.. •. . • .... • ............... . .. . . ..
Goodwill ...... ...... .. .. .. .. .. . ... . ... • . ... . .... . . .... .. .... ... ...
Deferred income t axes ..... .. .. .. .. . .. .. .. .. . ....................... .
Total asset s . .. . . ... .. .. . .. . . ................... . .. .. .. .. . • . .. .. ..
Liabilities and shareholders' equity Current liab ilities Current portion of long-term debt .......... ... . . ... .. .. .. .. . .. ... . ... .
Notes payable .. ...... .. .. .. . ................... . ... . .. . .. • ..• . ...
Ac counts payable .. ... .. . ..... . ..... • .......... .. . .. .. .. .. .. .. . .. .
Accrued liabilities . . ... .. . . .. . . • ..•.. • .. .. • ..•.....................
Income taxes payable .. .. .. ......... . . . • .......... .... .... .. . .. .. . .
Total current liabilities .. . .................. . ..... .. .. . ....... . ..... . •.
Long-term debt . . . .......... ............... . . • . .. . .. ... . . . .. .. . . . .
Def err ed income taxes and other liabili ties ............ .. .. .. . . . .. . .... • .
Sharehold ers' equity Class A convertib le-315 and 329 shares outstanding ..... .. .. • .. • .... • .
Class B- 1 ,253 a nd 1 ,272 shares o utstanding . .... . .. . .• .. ..• .. . .. .. . .
Capital in excess o f stated value ...... . . . ..... . . .. .. . . . . . .. • . .. .... ..
Accumulated other comprehensive income (loss) .... . .. . ........ ... . .. . .
Retai ned earnings ... .. .. .. . .................. .. .. . .. .. .. .. . ...... .
Total shareholders ' equity ............. . ...... . .. . ............ . ... .
Total liabilities and shareholders' equit y ... . ....................... .. .
2019 $39, 117 2 1,643 17,474 ---
3,753 8,949 12,702 49 (78)
4,801 772 $ 4,029 2019 $ 4,466 197 4,272 5,622 1,968 16,525 4,744 283 154 2 ,011 ---
$23,7 17 $ 6 9 2,6 12 5,0 10 229 7,866 3,464 3,3 47 3 7, 163 231 1,6 43 ---
9,040 $23,717 2018 $36,397 20,441 15,956 3,577 7,934 11 ,51 1 54 66 4,325 2,392 $ 1,933 2018 $ 4,249 996 3,498 5,261 1, 130 15,134 4,454 285 154 2,509 $22,536 $ 6 336 2,2 79 3,269 150 6,040 3,468 3,2 16 3 6,384 (92)
3,5 17 9,8 12 ---
$22,536 NIKE, INC.
Consolidated Statements of Cash Flows Year Ended May 31 (in millions) 2019 2018 Cash provided by operations:
Net income ..................................................... .. ..... . $4,029 $1,933 Adjustments to reconcile net income to net cash provided by operations:
Depreciation .................................................. • ....... 705 747 Deferred income taxes ............... • . .. . • .. • .... . .. .. . . .... . .......... 34 647 Stock-based compensation . ... ...... . ... . .. .. .. . . . .... . .... . .. . .. . .... . . . 325 218 Amortization and other ............... • .... . .. . .... . ..... . .... .. . . ....... 15 27 Net foreign currency adjustments ......................................... . 233 (99)
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable ................................. . (270) 187 (Increase) decrease in inventories ........................................ . (490) (255)
(Increase) decrease in prepaid expenses and other current and non-current assets .. . (203) 35 Increase (decrease) in accounts payable, accrued liabilities and other current and non-current liabil ities ................................................. . 1,525 1,515 Cash provided by operations ........... ..... .... . .... . .... . . .... .. . ... .... . 5,903 4,955 Cash provided (used) by investing activities:
Purchases of short-term investments ......... ...... .... . .. .... ....... . .. . . . (2,937) (4,783)
Maturities of short-term investments ..... . ... . .. . . ....... . . . . .. .. .. . .... ... . 1,715 3,613 Sales of short-term investments .............•.. • .... •. .•..•....... •..... .. 2,072 2,496 Additions to property, plant and equipment . .. . .. . ... .. . ..... ... .. .. ........ . (1 ,119) (1,028)
Disposals of property, plant and equipment ....... ... .. . ..... ... .. .. . ....... . 5 3 Other investing activities ............. ...... . .... . .. . . .. .... . .. . .. . .... • .. (25)
Cash provided (used) by investing activities ..... .. . .. ... . .. .. . ... .. .. .... .. .. . (264) 276 Cash used by financing activities:
Long-term debt payments, including current portion ......•..•..•....•..•....... (6) (6)
Increase (decrease) in notes payable .. ... . .. . .. .. .. ...... ..... .. .. .... .... . (325) 13 Payments on capital lease and other financing obligations ..................... . (27) (23)
Proceeds from exercise of stock options and other stock issuances .. . . . .. . ....•.. 700 733 Repurchase of common stock .... . ............................ .. ........ . (4,286) (4,254)
Dividends-common and preferred .....................•.. • .... • ..•....... (1 ,332) (1,243)
Tax payments for net share settlement of equity awards ............. . ......... . (17) (55)
Cash used by financing activities ......................... . .. . .... .. . .... ... . (5,293) (4,835)
Effect of exchange rate changes on cash and equivalents ..... .. . ... .. .. . .. ..... . (129) 45 Net increase (decrease) in cash and equivalents ............ . . . . ..• .... ...... • .. 217 441 Cash and equivalents, beginning of year ........... . .... . ..... . .............. . 4,249 3,808 Cash and equivalents, end of year ... . ....•....•..•....•.. • ..•....... •. ...... $4,466 $4,249 Required

a. Compute the current ratio and quick ratio for 2018 and 2019. Comment on any observed trends.

b. Compute total liabilities-to-equity ratio and total debt-to-equity ratio for 2018 and 2019. Comment on any trends observed.

c. Compute times interest earned ratio, cash from operations to total debt ratio, and free operating cash flow to total debt ratio for 2018 and 2019. Financial statements included the followi ng footnote:
" Included in Interest expense (income), net was interest income related to the Company's investment portfolio of $82 million and $70 million for the years ended May 3 1, 2019 and 2018, respectively."
Comment on any trends observed.

d. Summarize findings in a conclusion about the company's credit risk. Are there any concerns about the company's abi lity to meet its debt obligations?