Principles of Finance - PDF

Running head: PRINCIPLES OF FINANCE
Principles of finance
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1PRINCIPLES OF BUSINESS
Table of Contents
Introduction................................................................................................................................2
Pro-forma income statement for the year 2018..........................................................................2
Pro-forma income statement for the year 2018..........................................................................3
Computation of ratio..................................................................................................................3
Ratio analysis.............................................................................................................................5
Computation of return on equity under DuPont system.............................................................7
Economic value added (EVA)...................................................................................................8
Financial risks associated with the international operation of the company..............................9
Conclusion and recommendation...............................................................................................9
Reference..................................................................................................................................10

2PRINCIPLES OF BUSINESS
Introduction
The main objective of the report is to analyze Nike Inc. through using the data from
the annual report of the company. The report will analyze the weaknesses and strengths of the
company and recommending for investing in the stock of the company. Further, for analyzing
the company various financial ratios like liquidity ratio, profitability ratios, activity ratios and
gearing ratios will be used. Nike Inc is the leader in distributing, marketing and designing the
authentic athletic apparel, footwear, accessories and equipment for large range of fitness and
sports activities. Further, the wholly owned subsidiary of the company Converse designs
distributes and markets the athletic lifestyle apparel, accessories and footwear. The mission of
the company is bringing innovation and inspiration to each athlete all over the world. The
founder of Bill Bowerman believes that if a person has body, he is an athlete. However, the
vision statement of the company is subject to speculation taking into consideration the
information scarcity from the entity with regard to the corporate vision. As the leading
producer in the sports equipment, apparel and shoes, the company shall maintain its mission
and vision that is appropriate to their business in the global market (Nike.Just Do
It.Nike.com, 2018).
Pro-forma income statement for the year 2018
Particulars Amt (in millions)
Revenue $ 37,785
Cost of sales $ 20,942
Gross profit $ 16,843
Demand creation expense $ 3,400
Operating overhead expense $ 7,343
Total selling and administrative expenses $ 10,743
Interest expense $ 75
Interest income $ 225
Income before income taxes $ 6,250
Income tax expense $ 813

3PRINCIPLES OF BUSINESS
Net income $ 5,438
Pro-forma income statement for the year 2018
Particulars Amt (in millions)
Assets
Current assets:
Cash and equivalents $ 3,900
Short-term investments $ 2,300
Account receivable, net $ 3,917
Inventories $ 5,123
Prepaid expenses and other current assets $ 950
Total current assets $ 16,190
Property, plant and equipment, net $ 3,590
Identifiable intangible assets, net $ 283
Goodwill $ 139
Deferred income taxes and other assets $ 4,200
Total assets $ 24,402
Liabilities and shareholders' equity
Current liabilities
Current portion of long term debt $ 8
Notes payable $ 550
Accounts payable $ 1,820
Accrued liabilities $ 3,050
Income taxes payable $ 108
Total current liabilities $ 5,536
Long term debt $ 3,800
Deferred income taxes and other liabilities $ 1,200
Common stock at the stated value
Class B - 1314 and 1329 shares outstanding $ 3
Capital in excess of stated value $ 8,638
Accumulated other comprehensive income/ (Loss) $ (213)
Retained earnings $ 5,438
Total shareholders' equity $ 13,866
Total liabilities and shareholders' equity $ 24,402
Computation of ratio
Ratio Formula Result
Liquidity ratio
Current ratio Current assets / current liabilities 2.93