Accounts receivable at May 31, 2013 ……………………. $ 3,117 — The financial statements for Nike Inc are presented Appendix end text following
Accounting & FinanceFinancial AccountingAcademic Paper
The financial statements for Nike, Inc., are presented in Appendix E at the end of the text. The following additional information is available (in thousands):
Accounts receivable at May 31, 2013 ……………………. $ 3,117
Inventories at May 31, 2013 ……………………………… 3,484
Total assets at May 31, 2013 ……………………………… 17,545
Stockholders’ equity at May 31, 2013 …………………… 11,081
Instructions
1. Determine the following measures for the fiscal years ended May 31, 2015, and May 31, 2014. (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, assuming interest expense is $28 million for the year ending May 31, 2015 and $24 million for the year ending May 31, 2014
K. Return on common stockholders’ equity
L. Price-earnings ratio, assuming that the market price was $101.67 per share on May 29, 2015, and $76.91 per share on May 30, 2014
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M. Percentage relationship of net income to sales
2. What conclusions can be drawn from these analyses?
SOLUTION
NIKE, INC., PROBLEM
Fiscal
Fiscal
2015
2014
1.
A.
Current assets
$15,976.0
$13,696.0
Current liabilities
6,334.0
5,027.0
Working capital
$ 9,642.0
$ 8,669.0
B.
Current assets
$15,976.0
$13,696.0
÷ Current liabilities
6,334.0
5,027.0
Current ratio
2.5
2.7
C.
Quick assets:
Cash
$ 3,852.0
$ 2,220.0
Short-term investments
2,072.0
2,922.0
Accounts receivable
3,358.0
3,434.0
Total quick assets
$ 9,282.0
$ 8,576.0
÷ Current liabilities
6,334.0
5,027.0
Quick ratio
1.5
1.7
D.
Sales
$30,601.0
$27,799.0
Accounts receivable (net):
Beginning of year
$ 3,434.0
$ 3,117.0
End of year
3,358.0
3,434.0
Total
$ 6,792.0
$ 6,551.0
Average accounts receivable (Total ÷ 2)
3,396.0
3,275.5
Accounts receivable turnover
(Sales ÷ Average accounts receivable)
9.0
8.5
E.
E.
Average daily sales:
Sales
$30,601.0
$27,799.0
÷ 365
365
365
Average daily sales (Sales ÷ 365)
83.8
76.2
Average accounts receivable (Total ÷ 2)
3,396.0
3,275.5
÷ Average daily sales
83.8
76.2
Number of days’ sales in receivables
40.5
43.0
F.
F.
Cost of goods sold
$16,534.0
$15,353.0
Inventories:
Beginning of year
$ 3,947.0
$ 3,484.0
End of year
4,337.0
3,947.0
Total
$ 8,284.0
$ 7,431.0
Average inventory (Total ÷ 2)
4,142.0
3,715.5
Inventory turnover
(Cost of goods sold ÷ Average inventory)
4.0
4.1
G.
Inventory (average)
$4,142.0
$3,715.5
Cost of goods sold
16,534.0
15,353.0
Average daily cost of goods sold
45.3
42.1
Number of days’ sales in inventory (Average
inventory ÷ Average daily cost of goods sold) ........
91.4
88.3
H.
Total liabilities
$8,893.0
$7,770.0
÷ Total stockholders’ equity
12,707.0
10,824.0
Ratio of liabilities to stockholders’ equity
0.7
0.7
I.
Total liabilities
$30,601.0
$27,799.0
Total assets (excluding long-term investments):
Beginning of year
$18,594.0
$17,545.0
End of year
21,600.0
18,594.0
Total
$40,194.0
$36,139.0
Average total assets
20,097.0
18,069.5
Asset turnover
..........1.5
..........1.5
J.
Net income
$ 3,273.0
$ 2,693.0
Interest expense
____28.0
____24.0
Total
$ 3,301.0
$ 2,717.0
Total assets:
Beginning of year
$18,594.0
$17,545.0
End of year
21,600.0
18,594.0
Total
$40,194.0
$36,139.0
Average total assets
20,097.0
18,069.5
Return on total assets
[(Net income + Interest expense)÷
Average total assets]
16.4%
15.0%
K.
Net income
$ 3,273.0
$ 2,693.0
Stockholders’ equity:
Beginning of year
$10,824.0
$11,081.0
End of year
12,707.0
10,824.0
Total
$23,531.0
$21,905.0
Average common stockholders’ equity
11,765.5
10,952.5
Return on common stockholders’ equity
27.8%
24.6%
L.
Market price per share of common stock
$ 101.67
$ 76.91
Earnings per share on common stock
3.80
3.05
Price-earnings ratio
26.8
25.2
2015
2014
M. Net income
$ 3,273.0
$ 2,693.0
Sales
30,601.0
27,799.0
Net income to sales
10.7%
9.7%
2.
Before reaching definitive conclusions, each measure should be compared with past years, industry averages, and similar firms in the industry.
A.
The working capital increased between 2014 and 2015.
B. and C.
The current and quick ratios both decreased during 2015.
D. and E.
The accounts receivable turnover and the number of days’ sales in receivables indicate an increase in the efficiency of collecting accounts receivable. The accounts receivable turnover increased from 8.5 to 9.0.
The number of days’ sales in receivables decreased slightly from 43.0 to 40.5. Thus, it takes the company less than two months to collect its accounts receivable from credit sales. These numbers should be compared to their competitors, industry averages, and Nike’s credit policy to draw definitive conclusions.
F. and G.
The results of these two analyses show a very slight decrease in inventory turnover and an increase in the number of days’ sales in inventory. Both trends are small. Inventory management is critical to Nike, so this indicates a favorable trend.
H. The margin of protection to creditors remained constant. Overall, Nike provides sound protection to its creditors.
I. These analyses indicate that the effectiveness in the use of assets to generate revenues was very similar in both years.
J. The return on total assets increased during 2015. This increase was from Nike’s net income increasing at a faster pace than total assets during 2015. Overall, returns on assets that exceed 10% are usually considered good performance.
K. The return on common stockholders’ equity increased. This increase was due to Nike’s strong earnings performance in 2015.
L. The price-earnings ratio increased somewhat from 2014 to 2015. This increase was driven by an increase in Nike’s earnings per share (from $3.05 in fiscal 2014 to $3.80 in fiscal 2015) combined with a sizable increase in stock price during the same period.
M. The percent of net income to sales increased during 2015.