Q 1 Part A.

Step 1. Compute the Sustainable Growth Rate based on the following information of Nike in fiscal year 2019:

Return on Equity (ROE)

Payout Ratio

Sustainable Growth Rate = Plowback ratio * Return on Equity

= (1 Payout ratio) * Return on Equity

Step 2. Provide interpretation of your computed Sustainable Growth Rate.

B. Applications of Equity Research.

Answer following 2 steps to compute and interpret Sustainable growth rate for Nike.

Step1. Compute the sustainable growth rate for Nike. Provide all the sources of information and all steps of calculations.

Hint: Sustainable Growth Rate = (1-Payout Ratio)* Return on equity

Step2. Provide interpretation of your computed sustainable growth rate.

Q2. Application of financial analyses and equity research for Nike.

P1. Perform the 2step approach by financial analyses by examining all of the following financial ratio information for Nike.

1. Firm Size
2. Leverage ration
3. Liquidity ratio
4. Efficiency ratio
5. ROA (Measure of Profitability Ratio)
6. ROE (a Measure of profitability ratio)
7. Payout Ratio (a measure of profitability ratio)
8. Forward P/E ratio (a measure of market valuation ratio)
9. P/B ration (a measure of market valuation ratio)
10. Institutional ownership (a measure of corporate governance)

In order to have a complete assessment of the ratios, you need to compare the ratios with: Step1- the overall market average and critical value; and Step2- the ratios of competitors/comparable firms or the industry average.

NIKE, INC. CONSOLIDATED BALANCE SHEETS MAY 31, 2019 2018 $ 44065 4246 197 4272 3.49 5622 5.25 1.95 1.13 15.135 4.744 203 20 154 2011 2.50 23.717 5 22.54 $ (Dollars in millions) ASSETS Current assets: Cash and equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Identifiable intangible assets, net Goodwill Deferred income taxes and other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Commitments and contingencies (Note 18) Redeemable preferred stock Shareholders' equity: Common stock at stated value: Class A convertible --- 315 and 329 shares outstanding Class B - 1,253 and 1,272 shares outstanding Capital in excess of stated value Accumulated other comprehensive income (loss) Retained earnings Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9 2012 2.21 5010 32 220 150 7.866 3454 3347 3.210 3 7.163 ME 231 2 1.643 3.517 9040 9812 23.7175 NIKE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR END MAYBE 2019 2018 1 400 06 Y4 To 14 105 210 10 23 22 187 000 23 2001 100 4 2.933) 14.3 15.00 1 TIS 2012 2404 (1.110 100% 11.101 $ 1 (Dollars in willions) Cash provided by operations: Not Income Adjustments to reconcile net income to net cash provided by operations Depreciation Deferred income taxes Stock-based compensation Amortization and other Net foreign currency adjustments Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable (Increase) decrease in inventories (Increase) decrease in propald expenses and other current and non-current assets Increase (decrease) in accounts payable, accrued liabilities and other current and non-current liabilities Cash provided by operations Cash provided (used) by investing activities: Purchases of short-term investments Maturities of short-term investments Sales of short-term investments Additions to property, plant and equipment Disposals of property, plant and equipment Other investing activities Cash provided (used) by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion Increase (decrease) in notes payable Payments on capital lease and other financing obligations Proceeds from exercise of stock options and other stock issuances Repurchase of common stock Dividends - common and preferred Tax payments for not share settlement of equity awards Cash used by financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR Supplemental disclosure of cash flow information: Cash paid during the year for Interest, not of capitalized interest Income taxes Non-cash additions to property, plant and equipment Dividends declared and not paid 200 094 11.000 10 13 231 700 14 1421 0.22 11.13 (17) 155 152 2.14 45 212 441 4 3. 4401 5 1255 TO NIKE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY COMMON STOCK CLASS A SHARES AMOUNT 353 $ CLASS B SHARES AMOUNT 1,329 $ 3 $ CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE RETAINED INCOME (LOSS) EARNINGS 318 $ 6,899 $ TOTAL 5,038 $ 12,258 17 525 525 (24) 24 (60) (189) (3,060) (3,249) (1.159) (1.159) 4 121 (13) 108 215 215 4,240 4,240 (531) (213) $ (531) 12,407 329 $ 1,314 $ 3 $ 5,710 $ 6,907 $ 600 24 (70) 600 (4.267) (254) (4,013) (1,265) (1,265) 4 110 (28) 82 (In millions, except per share data) Balance at May 31, 2016 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock ($0.70 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Balance at May 31, 2017 Stock options exercised Repurchase of Class B Common Stock Dividends on common stock ($0.78 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Reclassifications to retained earnings in accordance with ASU 2018-02 (Note 1) Balance at May 31, 2018 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock ($0.86 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Adoption of ASU 2016-16 (Note 1) Adoption of ASC Topic 606 (Note 1) Balance at May 31, 2019 218 218 1,933 1,933 104 104 17 (17) 3,517 $ 329 $ 1,272 $ 3 $ 6,384 $ (92) $ 9,812 18 539 539 (14) 14 (54) (227) (4,056) (4,283) (1,360) (1,360) 3 142 (3) 139 325 325 4,029 4,029 323 323 (507) (507) 23 23 315 $ 1,253 $ 3 $ 7,163 $ 231 $ 1,643 $ 9,040 NIKE, INC. CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED MAY 31, 2019 2018 2017 $ 39,117 $ 36,397 $ 34,350 21,643 20,441 19,038 17,474 15,956 15,312 3,753 3,577 3,341 8,949 7,934 7,222 12,702 11,511 10,563 49 54 59 (78) 66 (196) (In millions, except per share data) Revenues Cost of sales Gross profit Demand creation expense Operating overhead expense Total selling and administrative expense Interest expense (income), net Other (income) expense, net Income before income taxes Income tax expense NET INCOME Earnings per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 4,801 4,325 4,886 772 2,392 646 $ 4,029 $ 1,933 $ 4,240 $ 2.55 $ 1.19 $ 2.56 $ 2.49 $ 1.17 $ 2.51 1,579.7 1,623.8 1,657.8 1,618.4 1,659.1 1,692.0 NIKE, INC. CONSOLIDATED BALANCE SHEETS MAY 31, 2019 2018 $ 44065 4246 197 4272 3.49 5622 5.25 1.95 1.13 15.135 4.744 203 20 154 2011 2.50 23.717 5 22.54 $ (Dollars in millions) ASSETS Current assets: Cash and equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Identifiable intangible assets, net Goodwill Deferred income taxes and other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Commitments and contingencies (Note 18) Redeemable preferred stock Shareholders' equity: Common stock at stated value: Class A convertible --- 315 and 329 shares outstanding Class B - 1,253 and 1,272 shares outstanding Capital in excess of stated value Accumulated other comprehensive income (loss) Retained earnings Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9 2012 2.21 5010 32 220 150 7.866 3454 3347 3.210 3 7.163 ME 231 2 1.643 3.517 9040 9812 23.7175 NIKE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR END MAYBE 2019 2018 1 400 06 Y4 To 14 105 210 10 23 22 187 000 23 2001 100 4 2.933) 14.3 15.00 1 TIS 2012 2404 (1.110 100% 11.101 $ 1 (Dollars in willions) Cash provided by operations: Not Income Adjustments to reconcile net income to net cash provided by operations Depreciation Deferred income taxes Stock-based compensation Amortization and other Net foreign currency adjustments Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable (Increase) decrease in inventories (Increase) decrease in propald expenses and other current and non-current assets Increase (decrease) in accounts payable, accrued liabilities and other current and non-current liabilities Cash provided by operations Cash provided (used) by investing activities: Purchases of short-term investments Maturities of short-term investments Sales of short-term investments Additions to property, plant and equipment Disposals of property, plant and equipment Other investing activities Cash provided (used) by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion Increase (decrease) in notes payable Payments on capital lease and other financing obligations Proceeds from exercise of stock options and other stock issuances Repurchase of common stock Dividends - common and preferred Tax payments for not share settlement of equity awards Cash used by financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and equivalents Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR Supplemental disclosure of cash flow information: Cash paid during the year for Interest, not of capitalized interest Income taxes Non-cash additions to property, plant and equipment Dividends declared and not paid 200 094 11.000 10 13 231 700 14 1421 0.22 11.13 (17) 155 152 2.14 45 212 441 4 3. 4401 5 1255 TO NIKE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY COMMON STOCK CLASS A SHARES AMOUNT 353 $ CLASS B SHARES AMOUNT 1,329 $ 3 $ CAPITAL IN EXCESS OF STATED VALUE ACCUMULATED OTHER COMPREHENSIVE RETAINED INCOME (LOSS) EARNINGS 318 $ 6,899 $ TOTAL 5,038 $ 12,258 17 525 525 (24) 24 (60) (189) (3,060) (3,249) (1.159) (1.159) 4 121 (13) 108 215 215 4,240 4,240 (531) (213) $ (531) 12,407 329 $ 1,314 $ 3 $ 5,710 $ 6,907 $ 600 24 (70) 600 (4.267) (254) (4,013) (1,265) (1,265) 4 110 (28) 82 (In millions, except per share data) Balance at May 31, 2016 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock ($0.70 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Balance at May 31, 2017 Stock options exercised Repurchase of Class B Common Stock Dividends on common stock ($0.78 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Reclassifications to retained earnings in accordance with ASU 2018-02 (Note 1) Balance at May 31, 2018 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock ($0.86 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Adoption of ASU 2016-16 (Note 1) Adoption of ASC Topic 606 (Note 1) Balance at May 31, 2019 218 218 1,933 1,933 104 104 17 (17) 3,517 $ 329 $ 1,272 $ 3 $ 6,384 $ (92) $ 9,812 18 539 539 (14) 14 (54) (227) (4,056) (4,283) (1,360) (1,360) 3 142 (3) 139 325 325 4,029 4,029 323 323 (507) (507) 23 23 315 $ 1,253 $ 3 $ 7,163 $ 231 $ 1,643 $ 9,040 NIKE, INC. CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED MAY 31, 2019 2018 2017 $ 39,117 $ 36,397 $ 34,350 21,643 20,441 19,038 17,474 15,956 15,312 3,753 3,577 3,341 8,949 7,934 7,222 12,702 11,511 10,563 49 54 59 (78) 66 (196) (In millions, except per share data) Revenues Cost of sales Gross profit Demand creation expense Operating overhead expense Total selling and administrative expense Interest expense (income), net Other (income) expense, net Income before income taxes Income tax expense NET INCOME Earnings per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 4,801 4,325 4,886 772 2,392 646 $ 4,029 $ 1,933 $ 4,240 $ 2.55 $ 1.19 $ 2.56 $ 2.49 $ 1.17 $ 2.51 1,579.7 1,623.8 1,657.8 1,618.4 1,659.1 1,692.0