Using Nike's financial statements from the fiscal year ended May 31, 2021 and May 31, 2020.

1. Asset and Liability Adjustment

a. What is Nikes Inventory methods? (e.g.: FIFO, LIFO, etc.)

b. Does Nikes disclose any additional information related to its inventory method that allow readers to adjust its inventory method to FIFO or LIFO?

c. What is Nikes total stock-based compensation expense in 2021, 2020, and 2019? What trend do you observe?

d. Based on the information in the 10-K, is Nike having more options and RSUs outstanding or less?

e. Does Nike have any Treasury stock?

2. Advertisement Expense Adjustments

a. Although Nikes R&D expenses are limited, the company does invest heavily in advertising and other promotional expenses. Because you believe these advertisement expenses create benefits that will benefit the firm over multiple periods, you decide to capitalize these expenses and adjust the financial statements accordingly.

b. We will do a simplified version to make this adjustment. We will take the average of the demand creation expense over the past three years (2021, 2020, and 2019s) then add it to the balance sheet as a capitalized advertisement asset. For the income statement, we will remove the 2021 advertisement expense and replace that with the average of 2021, 2020, and 2019s advertisement expense. (Hint: Nike does not call its advertisement expense advertisement expenses, read the income statement carefully to find out how Nike calls it on the 10-K.)[1]

c. What is the NOPAT after this adjustment? What is the NOA after this adjustment? Does Nikes NOPAT change significantly after this adjustment? Does Nikes NOA change significantly?

[1] This is a simplified adjustment. The more accurate version works like this (not required for this assignment): assuming a three-year life for advertising, calculate the adjusted advertisement expense for Nike in the most recent fiscal year and the unamortized value of Nike's capitalized advertisement asset at the end of the fiscal year (May 31, 2021). Use your answers and any necessary information from Nike's financial statements to calculate how much adjustment you need to make toward Nikes operating asset as well as the operating income, assume all advertisement expenses occur in the beginning of the fiscal year. (Hint #1: To make correct adjustment, you first need to remove 2/3 of 2021s advertisement expense from the income statement, add 1/3 of the 2021 advertisement expense to current asset as it will be amortized within the next year, add 1/3 of the 2021 advertisement expense to long term asset as it will be amortized one year later. We also need to add 1/3 of 2020s advertisement expense to your income statement as amortized advertisement expense and 1/3 to the balance sheet as current asset. Finally, we need to add 1/3 of 2019s advertisement expense to your income statement.)