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Financial Statement Analysis of Nike: Insights on Cash Flows and Profitability Metrics

This document provides a comprehensive analysis of Nike's financial statements, focusing on the Statement of Cash Flows (SCF) and key profitability metrics. It explores concepts like Return on Assets (ROA), Profit Margin, and Asset Turnover. Additionally, the analysis discusses liquidity ratios such as Accounts Receivable Turnover, Inventory Turnover, and solvency ratios including Debt to Equity Ratio. The report emphasizes the importance of understanding both profitability and the balance sheet in evaluating Nike's financial health.

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Financial Statement Analysis of Nike: Insights on Cash Flows and Profitability Metrics

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  1. Financial Statement Analysis Acct 592 July 8, 2003

  2. Nike Case Continued…

  3. Statement of Cash Flows Grid ► Sign (+ or -) indicated in grid is the adjustment to net income for the year in the operating section on the SCFs

  4. Chapter 3 Introduction to Profitability and Risk Analysis

  5. Using ROA and its components • Return on Assets ROA = • Profit Margin πM = • Asset Turnover ATO =

  6. MultiStep Income Statement Net Sales - COGS Gross Profit - Operating Expenses (SG&A) Operating Income +/- Other Revenues and Expenses Income before Taxes - Provision for Taxes Net Income (Income from Cont. Operations)

  7. MultiStep IS – Cont. ….. - Provision for taxes Income from Continuing Operations +/- Discontinued operations (net of tax) +/- Extraordinary items (net of tax) +/- Changes in acct. principles (net of tax) Net Income

  8. Liquidity • Accounts receivable turnover • Inventory turnover • Accounts payable turnover • Current ratio • Quick ratio

  9. Solvency • Long-term Debt Ratio • Debt to Equity Ratio • Liabilities to Assets Ratio • Interest Coverage Ratio (accrual and cash flow) • Operating Cash Flows to Liabilities

  10. Profitability & the B/S • ROA → • ROC • ROPS • ROCE • Note that this is not an equality but rather an allocation to each source of capital

  11. Now, decompose ROCE Common Capital ROCE = ROA x Earnings x Structure Leverage Leverage

  12. EPS, Appendix 3.1 • Basic vs. Diluted (Complex) EPS

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