Ratio analysis 3 (10 points) Name: Ratios: inventory turnover and # of days sale in inventory You will use the NIKE financial statements in appendix C for these ratios The formula for inventory turnover is = Cost of merchandise sold average merchandise inventory Average inventory is the sum of the beginning and ending added together and then divided by 2. The beginning inventory for 5/31/18 is the ending inventory for 5/31/17. The beginning inventory for 5/31/17 is 4,838. You will round the average inventory to the nearest tenth before diving into the cost of merchandise sold (Nike uses cost of sales). Then round the ratio to the nearest tenth. 5/31/18 ratio 5/31/17 ratio This ratio measures the number of times inventory is turned over during the year. The higher the number, the more efficiently the company is buying, selling and replacing the inventory, and managing it's inventory well. Comment on NIKES inventory efficiency and management between the two years The formula for number of days sales in inventory is: Average merchandise inventory Average daily cost of merchandise sold Average inventory is the sum of the beginning and ending added together and then divided by 2. The beginning inventory for 5/31/18 is the ending inventory for 5/31/17. The beginning inventory for 5/31/17 is 4,838. You will round the average inventory to the nearest tenth before diving into the cost of merchandise sold (Nike uses cost of sales). Then round the ratio to the nearest tenth. The average daily cost of merchandise sold is Cost of merchandise sold / 365. You will round this to the nearest tenth before dividing into average inventory This ratio is a rough measure of the number of days it takes to purchase, sell and replace the inventory. 5/31/18 ratio 5/31/17 ratio Comment on NIKES inventory efficiency and management between the two years NIKE, Inc. Consolidated Statements of Income (In millions, except per share data) Revenues Cost of sales Year Ended May 31, 2018 2017 2016 36.397 $ 34,350 $ 32.376 20.441 19.038 17,405 Gross profit 15.956 15,312 14,971 Demand creation expense 3.577 3.341 3.278 Operating overhead expense 7,934 7222 7,191 Total selling and administrative expense 11,511 10.563 10.409 Interest expense (income), net 54 59 19 Other expense (income), net 66 (196) (140) Income before income taxes Income tax expense NET INCOME Earnings per common share Basic Diluted 4,325 4,886 4,623 2.392 646 863 1,933 $ 4,240 $ 3,760 1.19 $ 256 $ 221 1.17 251 $ 2.16 Dividends declared per common share 0.78 $ 0.70 $ 082 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Statements of Comprehensive Income (in millions) Net income Other comprehensive income (loss), net of tax Change in net foreign currency translation adjustment Change in net gains posses) on cash flow hedges Change in net gains (osses) on other Total other comprehensive income (loss), net of tax TOTAL COMPREHENSIVE INCOME 2018 1,9335 Year Ended May 31, 2017 2018 4,240 $ 3,700 (0) 16 (176) 76 (515) (757) 34 (32) . 104 (531) (928) 2.037 3,709 2,832 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Balance Sheets (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 abilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other labies Commitments and contingencies (Note 15) Redeemable preferred stock Shareholders' equity Common stock at stated value Class A convertible-329 and 329 shares outstanding Class B-1272 and 1.314 shares outstanding Capital in excess of stated value Accumulated other comprehensive loss D 2018 May 31, 2017 4,249 $ 3,808 990 2.371 3,490 3.677 5,261 5,055 1,130 1,150 15,134 16.061 4,454 3,909 285 283 154 139 2.509 2.787 22,536 $ 23,259 336 325 2.270 2048 3.269 3,011 150 84 6.040 5.474 3,468 3,471 3,216 1.007 6.364 5.710 (02) (213) 3.517 6.907 Retained earnings Total shareholders' equity 9.812 12.407 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 22.536 $ 23.250 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Statements of Cash Flows Year Ended May 31, millions) Cash provided by operations: Net 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 2018 2017 2016 1.933 $ 4,240 $ 3,760 747 706 649 647 (273) (80) 218 215 236 27 10 13 (99) (117) 90 Changes in certain working capital components and other assets and liabilities: Decrease (increase) in accounts receivable 187 (426) 60 (Increase) in inventories (255) (231) (500) Decrease (increase) in prepaid expenses and other cument and non-current assets 35 (120) (161) Increase (decrease) in accounts payable, accrued labilities and other current and non-current liabilities 1.515 (158) (586) Cash provided by operations 4,955 3.846 3.399 Cash provided (used) by investing activities: Purchases of short-term investments (4.783) (5,928) (5.367) Maturities of short-term investments Sales of short-term investments Investments in reverse repurchase agreements 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 3.613 3,023 2.924 2.490 2.423 2.306 150 (1.028) (1.105) (1,143) 3 13 10 (25) (34) 276 (1,008) (1,034) 1,482 901 (6) (44) (106) 13 327 (67) (23) (17) 7 and trancing stlinations Cash provided (used) by investing activities: Purchases of short-term investments (4.783) (5,928) (5,367) Maturities of short-term investments 3,613 3,623 2.924 Sales of short-term investments 2,496 2.423 2.386 Investments in reverse repurchase agreements 150 Additions to property, plant and equipment (1,028) (1,105) (1.143) Disposals of property, plant and equipment 3 13 10 Other investing activities Cash provided (used) by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance (25) (34) 276 (1.008) (1,034) 1,482 901 Long-term debt payments, including current portion (6) (44) (106) Increase (decrease) in notes payable 13 327 (67) Payments on capital lease and other financing obligations (23) (17) (7) Proceeds from exercise of stock options and other stock issuances 733 489 507 Repurchase of common stock (4.254) (3.223) (3.238) Dividends-common and preferred (1,243) (1,133) (1,022) Tax payments for net share settlement of equity awards (55) (29) (22) 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, net of capitalized interest (4,835) (2.148) (2.974) 45 (20) (105) 441 670 (714) 3.800 3,138 3.852 4,249 S 3.808 $ 3,138 70 125 529 703 748 Income taxes 294 206 252 Non-cash additions to property, plant and equipment 320 300 271 Dividends declared and not paid The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement NIKE, Inc. Consolidated Statements of Shareholders' Equity Balance at May 31, 2015 Stock options exercised Conversion to Class B Common Stock Repurchase of Class B Common Stock Dividends on common stock ($0.62 per share) and preferred stock ($0.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation Common Stock Class A Class B Capital in Excess of Stated (in millions, except per share data) Shares Amount Shares Amount Value 355 $ 1,357 $ 4,165 $ 22 680 Accumulated Other Comprehensive Income Retained Earnings Total 1,246 7,293 $ 12,707 680 (2) 2 (56) (148) (3.090) (3.238) (1,053) (1,053) 105 (11) 94 236 236 Net income 3,760 3,760 Other comprehensive income (loss) (928) (928) Balance at May 31, 2016 353 1,329 $ 3 $ 5,038 $ 318 $ 6.899 $ 12.258 Stock options exercised 17 525 525 Conversion to Class B Common Stock (24) 24 (00) (189) 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 Conversion to Class B Common Stock Recurbase of CB Common Stock (3,060) (3.249) (1,150) (1,150) 121 215 (13) 100 215 4,240 4240 (531) (531) 329 $ 1,314 $ 3 $ 5,710 $ (213) 6.907 S 12,407 24 600 600 (201 254) 4.013) 14267) Other comprehensive income (loss) Balance at May 31, 2016 Stock options exercised 353 $ Conversion to Class B Common Stock (24) Repurchase of Class B Common Stock - 3.760 3.760 (928) (920) 1,329 $ $ 5.038 $ 318 $ 6.8995 12.258 17 525 525 24 (00) (189) (3.060) (3.249) 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 (1,150) (1.159) 121 (13) 108 215 215 4240 4240 Other comprehensive income (loss) (531) (531) Balance at May 31, 2017 329 $ 1.314 $ 3 $ 5,710 (213) $ 6,907 $ 12,487 Stock options exercised 24 600 000 Conversion to Class B Common Stock Repurchase of Class B Common Stock (70) (254) (4.013) (4287) Dividends on common stock ($0.78 per share) and preferred stock (30.10 per share) Issuance of shares to employees, net of shares withheld for employee taxes Stock-based compensation (1.265) (1.265) 110 218 12 218 Net income Other comprehensive income poss) 1.933 1933 104 104 Reclassifications to retained eamings in accordance with ASU 2018-02 17 (17) Balance at May 31, 2018 329 $ 1,272 35 6.34 1 (92) 1 3,317 1 3.312 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement