"Excess Cash" Calculation (Read Carefully) So, how and why did I adjust Nike's financial statements for the excess cash? Well, if I want to add the excess cash on the valuation date to my DCF valuation to arrive at my estimate of Nike's common stock price I can't just leave the excess cash on the valuation date balance sheet. Instead, I need to eliminate the excess cash from the 2018 valuation date balance sheet. How do I do that? I model Nike "paying" common shareholders a "dividend" on the valuation date in the amount of the excess cash. Under this modeling specification, I need to then reduce Cash and Net Common Stock (or Retained Earnings) by the amount of that "dividend", that is, the amount of the excess cash. Specifically, I need to reduce the 2018 Cash and Net Common Stock (or Retained Earnings) account balances by roughly 9% (=14% -5%) of 2018 Sales to bring the Cash balance down to the 5% level I deemed appropriate. This results in "excess cash" of $3,425,150 (the amount used in my valuation) = $36,397,000* 0.09 (rounding differences will occur if you check the amount with a calculator vs the amount in the slide which uses Excel and thus is based on more significant digits than you can see). ($000s) Actual Actual Actual Actual Actual Fiscal Year End (MM/DD/YYYY) 05/31/2018 05/31/2017 05/31/2016 05/31/2015 05/31/2014 ALL AMOUNTS AS ARE ORIGINALLY REPORTED BY NIKE Sales (Net) $36,397,000 Operating Cash and Market. Sec. $5,245,000 CASH/SALES (calculated from as original amounts) 14% NET COMMON STOCK ($000s) $6,387,000 $34,350,000 $6,179,000 18% $8,641,000 $32,376,000 $5,457,000 17% $30,601,000 $5,924,000 $27,799,000 $5,142,000 $7,789,000 19% $6,776,000 18% $5,868,000 Actual Fiscal Year End (MM/DD/YYYY) 05/31/2018 Actual 05/31/2017 Actual 05/31/2016 Actual 05/31/2015 Actual 05/31/2014 "RED" MEANS ADJUSTED FOR EXCESS CASH AT 5/31/2018 Sales (Net) (as reported amounts) $36,397,000 $34,350,000 $32,376,000 $30,601,000 $27,799,000 Operating Cash and Market. Sec. (SALES *5% AT 5/31/2018) AMOUNT ADJUSTED AT 5/31/2018 ONLY* $1,819,850 $6,179,000 CASH/SALES (SET TO 5% AT 5/31/2018 ONLY) 5% 18% $5,457,000 17% $5,924,000 $5,142,000 19% 18% "NET COMMON STOCK" (AS REPORTED AMOUNT MINUS THE EXCESS CASH AT 5/31/2018 ONLY)** $2,961,850 $8,641,000 $7,789,000 $6,776,000 $5,868,000 EXCESS CASH = AMOUNT ORIGINALLY REPORTED LESS REVISED AMOUNT SET TO 5% OF SALES AT 5/31/2018 $3,425,150 *NOTE: WE ONLY ADJUST THE AMOUNTS AT 5/31/2018 BECAUSE THAT IS OUR VALUATION DATE. **NOTE: WE CAN REDUCE THE "NET COMMON" STOCK ACCOUNT OR THE RETAINED EARNINGS ACCOUNT