Nike and the adidas Group compete toe-to-toe in the sport shoe and sport apparel business. For both companies, inventory is a significant portion of total assets. The following information was taken from each entity’s latest financial statements and notes to those financial statements. Note that Nike’s year-end is 31 May and adidas Group’s is 31 December.

Other information for adidas Group (euros in millions): 

Required

Answer each of these questions on how these two entities manage inventory:

(a) What challenges of inventory management might Nike and adidas Group face in the international sport apparel industry?

(b) What inventory cost flow assumptions does each entity use?

(c) adidas Group provides more detail regarding the nature of its inventory (e.g. raw materials, work in progress and finished goods) than does Nike. How might this additional information be useful in evaluating adidas Group?

(d) Calculate and interpret inventory turnover and days in inventory for each company for the latest year using the figures for total inventory.

Transcribed Image Text:

NIKE, INC. Notes to the financial statements Inventory valuation (extract). Inventories are stated at lower of cost or market and valued on a first-in, first-out (FIFO') or moving average cost basis. Inventory costs primarily consist of product cost from our suppliers, as well as freight, import duties, taxes, insurance and logistics and other handling fees. Other information for Nike (in US$ millions): Inventory Cost of sales 31 May 2013 3434 14279 2012 3222 13 183