Nike, Inc. 2010 Annual Report Questions

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General questions

  1. Nike mainly operates in the footwear, apparel,      accessories  and equipments business      segments.
  2. NIKE operates in a variety of  geographies including: North America,      Eastern and Central Europe, Western Europe, Japan, Greater China and Emerging      Markets.
  3. NIKE trades at the New York Stock Exchange under the      symbol  NKE.
  4. SEC Form 10-K is the NIKE’s annual report.
  5. SEC Form 10-Q is the NIKE’s quarterly reports.
  6. The NIKE’s auditor is usually the Securities  and Exchange Commission.
  7. Yes it did because its records were properly organized.
  8. The clean opinion is usually the  firm’s auditors opinion that the      financial statements are presented in a fair and clear manner that      coincides with the accounting principles that are generally accepted.
  9. No. NIKE was not involved in any acquisition activity      during the year of 2009 or 2010.
  10. The ( MD &A) referring to Management Discussion and      Analysis is actually the section of annual and quarterly financial      statements seeking the compliance of company’s management towards taking      responsibility for their actions as well as those of the companies they      head.
  11. A proxy statement is usually a corporation’s communication      to its stockholders prior to holding an annual meeting, purposely to      inform them about significant events that are to take place at the meeting      as well as giving them adequate information. However, the Securities and      Exchange Commission (SEC) ensures that all corporations trading their      stock to the general public to be always providing proxy statements to their      stockholders prior to annual general meeting.
  12. There were no incentive compensation for the employees      noted in the report but it seems they are well treated due to absence      union membership and labour disagreements.
  13. There were no subsequent events that were disclosed.
  14. NIKE reported its comprehensive income for 2010 on its      consolidated statements of income.
  15. Accounting policies are usually discussed at the board      of directors level.
  16. There were no covenants noted to link NIKE with      long-term debts.

Income Statement questions

  1. Nike use  a multi-step method in the preparation of its income statements.
  2. Compared to the previous year (2009) total sales of Nike (2010) are going down, even after the sales percentage is considered.
  3. 2010 net income compared to 2009 is going up.
  4. There are no discontinued operations or extraordinary items, since no operations that were sold or abandoned as well as infrequent occurring items.
  5. Yes, the company has restructuring charges of $6326.4 million in 2010.
  6. The Goodwill impairment charge is related to reduction in the balance sheet value of a company thereby adjusting its goodwill.
  7. Yes, Nike paid dividends on common stock in 2010.
  8. 8.      The numerator is 1906.7 ( net income) while the denominator is 485 (shares outstanding)

Balance Sheet questions

  1. A classified balance sheet is the one in which the assets  as well as liabilities are usually classified both into categories of current and long-term.
  2. Yes, Nike has a classified balance sheet.
  3. Nike have retained earnings of $ 6, 095.5 million in the year 2010.
  4. Accumulated deficit is the carryover of deficit by a company from a previous year inform of negative working capital, insufficient revenues, or a deficit in the stockholder’s equity.
  5. Accumulated deficit gets bigger  through an increase in the negative working capital, insufficient revenues, or deficit in the stockholder’s equity
  6. Yes, there is a possibility of accumulated deficit going away if all the companies commit themselves to eliminate it.
  7. Yes, because it may decide to hold the stockholders equity.
  8. The balance in Nike’s accumulated other comprehensive income at 5/31/2010 was $ 214.8. however, the items included were: net gain on cash flow hedges, foreign currency translation and other, net gain on net investment hedges, reclassification to net income of net gains that were previously deferred and related to hedge derivatives as well as reclassification of the hedge gains that are ineffective to net income.
  9. 9.       The company use fair value measurement for derivatives and available-for-sale securities assets. The total dollar value of assets  fair value measurement at 5/31/2010 using Level I and Level II was $2,315.7 million and $2,564.0 million respectively. Level III was not used.

Statement of Cash flows questions

  1. NIKE uses the indirect method of cash flow statement preparation since it starts with the net income conversion to net cash flow which accrue from the operating activities.
  2. The reason why cash flow from operations does not equal to net income is mainly because the operations leads to increase in revenues while not all the accrued revenues results to an increase in cash.

 

Financial ratio questions [use the ratio formulas from Appendix 5 A (p. 209) for calculations]

  1. Current ratio(2010) =  current assets ÷ current liabilities

= 10,959.2÷ 3,364.2 = 3.25

  1. Current ratio (2009) =  current assets ÷ current liabilities

= 9,734.0÷ 3,277.0 = 2.97

Therefore, the current ration in 2010 increased from 2009.

  1. Inventory turnover (2010) =  sales ÷ inventory

= 10,213.6÷ 2,040.8 = 5.00

  1. Rate of returns on assets (2010) =  (net income + interest expense) ÷ total assess

= (1906.7+ 6.3)÷ 10,213.6 = 0.187

  1. Debt to total assets ratio (2010) =  (short-term-debt + long-term debt) ÷ total assets

= (7.4 + 445.8) ÷ 14,419.3 = 0.031

  1. Debt to total assets ratio (2009) =  (short-term-debt + long-term debt) ÷ total assets

= (32 + 437.2) ÷ 13,249.6 = 0.035

Therefore, the debt to total assets ratio in 2010 has decreased from 2009.

  1. The Nike’s liquidity, activity  and profitability are all satisfactory according to the above calculations indicating increased current ratio, decreased debt to total assets ratio as well as a higher inventory ration.

 

Revenue Recognition, receivables and cash questions

  1. Revenue recognition policy for Nike which determines the choice of the transactions used as part of the company’s part of sales is straightforward  since the company mostly sells its goods in transactions  that  are single  standalone. Hence, its customers are either invoiced  to become debtors or pay directly  whereby in both cases  the  sales value is usually added in  the company revenues.
  2. Cash equivalent is among the three key assets classes alongside bonds  and stocks. However, they usually have low-return profile  as well as low-risk and they include bank certificates of deposit, U.S. government Treasury bills, bankers’ acceptances, corporate commercial paper and so on.
  3. The amount of the allowance for uncollectible accounts receivable at 5/31/10 and 5/31/09 was $116.7 million and $110.8 million respectively.

Inventory question

  1. Business Valuation has nowadays become  an intrinsic part of the today’s corporate landscape. Hence, Nike uses the Discounted cash flow valuation method which is based on free cash flow thereby regarded as a strong tool since it puts more emphasis on the business’s cash generation potential.

 

 

 

 

 

Reference

Nike, Inc. (2010). Annual report pursuant to section 13 and 15(d). Washington, DC: Thomson Reuters and Westlaw Business.

 

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