Nike, Inc., is a leading manufacturer and marketer of sport and fashion footwear. Incorporated in 1968 and headquartered in Beaverton, Oregon, its brand name has become almost universal, delivering sales of over$18.5 billion by 2008 and making it the largest seller of athletic footwear and apparel in the world, with operations in 180countries. Nike's top-selling product categories are running, basketball, and cross-training shoes, but it also markets shoes designed for tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, skateboarding, hiking, and outdoor activity. Many of its products are sold as leisurewear. In the 1990sNike was a hot stock, trading at a PIE ratioof35 and a PIB ratioof5.1 in mid-1999. By2008, its PIE ratio had fallen to 16anditsPIB ratio to 3.8, but its stock price increased during the bursting of the bubble, from$20in 2000to $40in 2004. We will spend considerable time in the book analyzing and valuing Nike. The Build Your Own Analysis Product (BYOAP) on the Web site tracks Nike from 1996to 2006. The 2008 financial statements (and comparative 2007 and 2006 statements) that follow introduce you to the firm. You also can find these financial statements in Nike's 10-K report for 2008 on the SEC's EDGAR Web site, which is accessible through the address given in Exercise 2.8, or through links on the book's Web site. Browse the entire 10-Kas an example of what a typical lO-K looks like. Look at the footnotes referred to in the statements below. Read the management's discussion of the business and get a sense of the business model. Look also at the firm's Web site at www.nike.com. Examine the financial statements in Exhibit 2.3andusethemtotestyourbasicknowledge of accounting. The questions that follow will help you focus on the pertinent features.

A. Using the numbers in the financial statements, show that the following accounting relations hold in Nike's 2008 statements:

i. Shareholders' equity = Assets Liabilities

ii. Net income= Revenue Expenses

iii. Cash from operations +Cash from investment +Cash from financing +Effect of exchange rate = Change in cash and cash equivalents

B. What are the components of other comprehensive income for 2008? Show that the following accounting relation holds:

Comprehensive income = Net income +Other comprehensive income.

C. Calculate the net payout to shareholders in 2008 from the Statement of Shareholders' Equity.

D. Explain how revenue is recognized.

E. Calculate the following for 2008:

gross margin, effective tax rate, EBIT, EBITDA, and the sales growth rate.