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 Gross profit Demand creation expense Operating overhead expense Total selling and administrative expense Interest expense (income), net Other expense (income), net Income before income taxes Income tax expense NET INCOME Earnings per common share: Basic Diluted Dividends declared per common share The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 2018 Year Ended May 31, 2017 2016 $ 36,397 $ 34,350 $ 32,376 20,441 19,038 17,405 15,956 15,312 14,971 3,577 3,341 3,278 7,934 7,222 7,191 11,511 10,563 10,469 54 59 19 66 (196) (140) 4,325 4,886 4,623 2,392 646 863 $ 1,933 $ 4,240 $ 3,760 $ 1.19 $ 2.56 $ 2.21 $ 1.17 $ 2.51 $ 2.16 $ 0.78 $ 0.70 $ 0.62 NIKE, Inc. Consolidated Statements of Comprehensive Income 2018 Year Ended May 31, 2017 2016 1,933 $ 4,240 $ 3,760 (6) 16 (176) 76 (515) (757) 34 (32) 5 104 (531) (928) $ 2,037 $ 3,709 $ 2,832 (In millions) Net income Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment Change in net gains (losses) on cash flow hedges Change in net gains (losses) on other Total other comprehensive income (loss), net of tax TOTAL COMPREHENSIVE INCOME The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. NIKE, Inc. Consolidated Balance Sheets May 31, 2018 2017 (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 4,249 $ 3,808 996 2,371 3,498 3,677 5,261 5,055 1,130 1,150 15,134 16,061 4,454 3,989 Identifiable intangible assets, net 285 283 Goodwill 154 139 Deferred income taxes and other assets 2,509 2,787 TOTAL ASSETS $ 22,536 $ 23,259 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 6 $ 6 336 325 2,279 2,048 3,269 3,011 150 84 6,040 5,474 3,468 3,471 3,216 1,907 Deferred income taxes and other liabilities 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-1,272 and 1,314 shares outstanding Capital in excess of stated value Accumulated other comprehensive loss 3 3 6,384 5,710 Retained earnings (92) 3,517 (213) 6,907 Total shareholders' equity 9,812 12,407 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,536 $ 23,259 NIKE, Inc. Consolidated Statements of Cash Flows Stock-based compensation (in millions) Cash provided by operations: Net income Adjustments to reconcile net income to net cash provided by operations: Depreciation Deferred income taxes Amortization and other Net foreign currency adjustments Changes in certain working capital components and other assets and liabilities: Decrease (increase) in accounts receivable (Increase) in inventories Decrease (increase) in prepaid expenses and other current and non-current assets 2018 Year Ended May 31, 2017 2016 $ FA 1,933 $ 4,240 $ 3,760 747 706 649 647 (273) (80) 218 215 236 27 10 13 (99) (117) 98 187 (426) 60 (255) (231) (590) 35 (120) (161) Increase (decrease) in accounts payable, accrued liabilities 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 3,613 3,623 2,924 2,496 2,423 - (1,028) (1,105) 2,386 150 (1,143) 3 13 10 (25) (34) 6 276 (1,008) (1,034) Cash used by financing activities: Net proceeds from long-term debt issuance 1,482 981 Long-term debt payments, including current portion (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 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 Income taxes Non-cash additions to property, plant and equipment Dividends declared and not paid The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. (55) (29) (22) (4,835) (2,148) (2,974) 45 (20) (105) 441 670 (714) 3,808 3,138 3,852 4,249 $ 3,808 $ 3,138 69 $ 125 $ 98 $ 70 529 703 748 294 266 252 320 300 271 NIKE, Inc. Consolidated Statements of Shareholders' Equity Common Stock (In millions, except per share data) 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 sharos to employees, net of shares withheld for employee taxes Stock-based compensation Net income Other comprehensive income (loss) Balance at May 31, 2016 Stock options exercised Class A Shares Amount 355 $ (2) Class B Shares Amount Value Capital in Accumulated Excess of Stated Other Comprehensive Income - 1,357 $ 3 $ 4,165 $ 22 680 2 (55) (148) Retained Earnings Total 1,246 $ 7,293 $ 12,707 680 (3,090) (3,238) (1,053) (1,053) 3 105 236 (11) 94 236 3,760 3,760 (928) (928) 353 $ - 1,329 $ 3 $ 5,038 $ 318 $ 6,899 $ 12,258 17 525 525 Conversion to Class B Common Stock (24) 24 (60) (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 (3,060) (3,249) (1,159) (1,159) 121 215 (13) 108 215 4,240 4,240 Other comprehensive income (loss) (531) (531) Balance at May 31, 2017 329 $ 1,314 $ 3 $ 5,710 $ (213) $ 6,907 $ 12,407 Stock options exercised 24 600 600 - (70) (254) Conversion to Class B Common Stock 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 combo income (l) Other comprehensive income (loss) Reclassifications to retained earnings in accordance with ASU 2018-02 Balance at May 31, 2018 329 $ 4 110 218 (4,013) (4,267) (1,265) (1,265) (28) 82 218 1,933 1,933 104 101 104 104 17 (17) 1,272 $ 3 $ 6,384 $ (92) $ 3,517 $ 9,812 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement