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Chapter 17 Financial Statement Analysis 879 Problem Financial statement analysis The financial statements for Nike, Inc., are presented in Appendix D at the end of the text. Use the following additional information (in thousands): Accounts receivable at May 31, 2014 $ 3, 117 Inventories at May 31, 2014 4, 142 Total assets at May 31, 2014 18,594 Stockholders' equity at May 31, 2014 12,000 Instructions 1. Determine the following measures for the fiscal years ended May 31, 2016, and May 31, 2015. Round ratios and percentages to one decimal place. a. Working capital b. Current ratio c. Quick ratio d. Accounts receivable turnover e. Number of days' sales in receivables f. Inventory turnover g. Number of days' sales in inventory h. Ratio of liabilities to stockholders' equity i. Asset turnover j. Return on total assets. k. Return on common stockholders' equity 1. Price-earnings ratio, assuming that the market price was $54.90 per share on May 29, 2016, and $52.81 per share on May 30, 2015 m. Percentage relationship of net income to sales 2 . What conclusions can be drawn from these analyses? Projects CP 17-1 Ethics in Action Rodgers Industries Inc. completed its fiscal year on December 31. Near the end of the fiscal year, the company's Internal Audit Department determined that an important internal control procedure had not been functioning properly. The head of Internal Audit, Dash eported the internal control failure to the company's chief accountant, Todd the ny's chief fiD-8 Appendix D Selected Excerpts from Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2016 NIKE, Inc. Consolidated Statements of Shareholders' Equity Common Stock Capital in Accumulated Excess Other (In millions, except per share data) Shares Class A Class B of Stated Comprehensive Retained Balance at May 31, 2013 Amount Shares Amount Value Income Earnings Total Stock options exercised 356 $ 1,433 $ $ 5,184 $ 274 $ 5,620 $ 11,081 Conversion to Class B Common (1) 22 445 445 Stock Stock Repurchase of Class B Common Dividends on common stock ($0.47 (73) (11) (2,617) (2,628) per share) Issuance of shares to employees (821) (821) Stock-based compensation 3 78 78 Forfeiture of shares from 177 177 employees Net income (1) (8) (4) (12) Other comprehensive income (loss) 2,693 2,693 Balance at May 31, 2014 355 $ (189) (189) Stock options exercised - 1,385 $ 3 $ 5,865 $ 85 27 639 $ 4,871 $ 10,824 Repurchase of Class B Common 639 Stock Dividends on common stock ($0.54 (58) (9) (2,525) (2,534) per share Issuance of shares to employees (931) (931) 3 Stock-based compensation 92 92 191 Forfeiture of shares from 191 employees (5) Net income (3) (8) Other comprehensive income (loss) 3,273 3,273 Balance at May 31, 2015 355 $ 1,357 $ 3 $ 6,773 $ 1, 161 1, 161 - Stock options exercised 22 1,246 680 $ 4,685 $ 12,707 Conversion to Class B Common 680 Stock (2) 2 Repurchase of Class B Common Stock (55) (8) Dividends on common stock ($0.62 (3,230) (3,238) per share) ssuance of shares to employees 3 (1,053) (1,053) 115 115 Stock-based compensation 236 236 Forfeiture of shares from employees (10) (21) Net income (11) 3,760 3,760 Other comprehensive income (loss) 353 $ (928) Balance at May 31, 2016 - 1,329 $ 3 7,786 $ (928) 318 $ 4,151 $ 12,258 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. The Notes may be found on the companion website at CengageBrain.comAppendix D Selected Excerpts from Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2016 D-7 NIKE, Inc. Consolidated Statements of Cash Flows (In millions) Cash provided by operations: Net income 2016 Year Ended May 31, 2015 2014 Income charges (credits) not affecting cash: Depreciation $ 3,760 $ 3,273 $ 2,693 Deferred income taxes Stock-based compensation 649 606 518 Amortization and other (80) (113) 236 (11) Net foreign currency adjustments 191 177 13 43 Changes in certain working capital components and other assets and 68 liabilities: 98 424 56 Decrease (increase) in accounts receivable (Increase) in inventories 60 (216 (298 (Increase) in prepaid expenses and other current assets (590) (621) (505) (Decrease) increase in accounts payable, accrued liabilities and (161) (144) (210) income taxes payable Cash provided by operations (889 1,237 525 Cash used by investing activities: 3,096 4,680 3,013 Purchases of short-term investments Maturities of short-term investments (5,367) (4,936) (5,386) Sales of short-term investments 2,924 3,655 3,932 Investments in reverse repurchase agreements 2,386 2,216 1,126 Additions to property, plant and equipment 150 (150 Disposals of property, plant and equipment (1, 143) (963) (880) Decrease (increase) in other assets, net of other liabilities 10 3 3 6 Cash used by investing activities (1,034) (2 ) (175) Cash used by financing activities: (1,207) Net proceeds from long-term debt issuance 981 Long-term debt payments, including current portion (106) (7) (60) (Decrease) increase in notes payable (67) (63) 75 Payments on capital lease obligations (7) (19) (17) Proceeds from exercise of stock options and other stock issuances 507 514 383 Excess tax benefits from share-based payment arrangements 281 218 132 Repurchase of common stock 3,238) (2,534) (2,628) Dividends - common and preferred (1,022) (899) (799 Cash used by financing activities (2, 671 ) (2,790 Effect of exchange rate changes on cash and equivalents 105) (2,914) (83) (9) Net ( decrease ) increase in ca in cash and equivalents (714 1,632 Cash and equivalents, beginning of year 3,852 2,220 (1,117) 3,337 CASH AND EQUIVALENTS, END OF YEAR $ 3, 138 $ 3,852 $ 2,220 Supplemental disclosure of cash flow information: Cash paid during the year for: 70 $ 53 $ 53 Interest, net of capitalized interest $ 748 1,262 856 Income taxes 252 206 167 Non-cash additions to property, plant and equipment 271 240 209 Dividends declared and not paid the accompanying Notes to the Consolidated Financial Statements are an integral part of this statement The Notes may be found on the companion website at CengageBrain.comD-6 Appendix D Selected Excerpts from Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2016 NIKE, Inc. Consolidated Balance Sheets May 31, (In millions) 2016 2015 ASSETS Current assets: Cash and equivalents EA 3, 138 $ 3,852 Short-term investments 2,319 2,072 Accounts receivable, net 3,241 Inventories 4,838 3,358 1,489 4,337 Prepaid expenses and other current assets 1,968 Total current assets 15,025 3,520 15,587 Property, plant and equipment, net 3,011 Identifiable intangible assets, net 281 281 Goodwill 131 131 Deferred income taxes and other assets 2,439 2,587 TOTAL ASSETS $ 21,396 $ 21,597 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 44 $ 107 Notes payable 74 Accounts payable 2, 191 2, 131 Accrued liabilities 3,037 3,949 Income taxes payable 85 71 Total current liabilities 5,358 6,332 Long-term debt 2,010 1,079 Deferred income taxes and other liabilities 1,770 1,479 Commitments and contingencies Redeemable preferred stock Shareholders' equity: Common stock at stated value: Class A convertible - 353 and 355 shares outstanding Class B - 1,329 and 1,357 shares outstanding 3 3 Capital in excess of stated value 6,773 Accumulated other comprehensive income 7,786 Retained earnings 318 1,246 4, 151 4,685 Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,258 2.707 21,396 $ 21,597 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. The Notes may be found on the companion website at CengageBrain.comD-4 Appendix D Selected Excerpts from Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2016 NIKE, Inc. Consolidated Statements of Income Year Ended May 31, (In millions, except per share data) 2016 2015 Revenues $ 32,376 $ 30,601 $ 2014 Cost of sales 17,405 16,534 27,799 Gross profit 14,971 14,067 15,353 Demand creation expense 3,278 3,213 12,446 Operating overhead expense 7, 191 6,679 3,031 5,735 Total selling and administrative expense 10,469 9,892 8,766 Interest expense (income), net 19 28 33 Other (income) expense, net (140 (58) 103 Income before income taxes 4,623 4,205 3,544 Income tax expense 863 932 851 NET INCOME $ 3,760 $ 3,273 $ 2,693 Earnings per common share: Basic 1.90 1.52 Diluted EA EA 2.21 2. 16 1.85 1.49 Dividends declared per common share $ 0.62 $ 0.54 $ 0.47 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. The Notes may be found on the companion website at CengageBrain.com
