70.2K

Verified Solution

Link Copied!

Compute and Interpret the Z-score Information from the balance sheet, income statement, and statement of cash flows for Nike follows. Refer to these financial statements to answer the requirements.

NIKE, INC. Consolidated Statements of Income
Year Ended December 31 (In millions)	2019	2018
Revenues	$39,117	$36,397
Cost of sales	21,643	20,441
Gross profit	17,474	15,956
Demand creation expense	3,753	3,577
Operating overhead expense	8,949	7,934
Total selling and administrative expense	12,702	11,511
Interest expense (income), net	49	54
Other (income) expense, net	(78)	66
Income before income taxes	4,801	4,325
Income tax expense	772	2,392
Net income	$ 4,029	$ 1,933

Consolidated Balance Sheets
May 31 (in millions)	2019	2018
Current Assets
Cash and cash equivalents	$ 4,466	$ 4,249
Short-term investments	197	996
Accounts receivable, net.	4,272	3,498
Inventories	5,622	5,261
Prepaid expenses and other current assets	1,968	1,130
Total current assets	16,525	15,134
Property, plant and equipment, net	4,744	4,454
Identifiable intangible assets, net	283	285
Goodwill	154	154
Deferred income taxes	2,011	2,509
Total assets	$23,717	$22,536
Liabilities and stockholders' equity
Current Liabilities
Current portion of long-term debt	$6	$6
Notes payable	9	336
Accounts payable	2,612	2,279
Accrued pension liabilities	5,010	3,269
Income taxes payable	229	150
Total current liabilities	7,866	6,040
Long-term debt	3,464	3,468
Deferred income taxes and other liabilities	3,347	3,216
Shareholders equity
Class A convertible315 and 329 shares outstanding	--	--
Class B1,253 and 1,272 shares outstanding	3	3
Capital in excess of stated value	7,163	6,384
Accumulated other comprehensive income (loss)	231	(92)
Retained earnings	1,643	3,517
Total shareholders equity	9,040	9,812
Total liabilities and stockholders' equity	$23,717	$22,536

Consolidated Statement of Cash Flows
Year Ended May 31 (in millions)	2019	2018
Cash provided by operations:
Net income	$4,029	$1,933
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	705	747
Deferred income taxes	34	647
Stock-based compensation	325	218
Amortization and other	15	27
Net foreign currency adjustments	233	(99)
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable	(270)	187
(Increase) decrease in inventories	(490)	(255)
(Increase) decrease in prepaid expenses and other current and non-current assets	(203)	35
Increase (decrease) in accounts payable, accrued liabilities and other current and non-current liabilities	1,525	1,515
Cash provided by operations	5,903	4,955
Cash provided (used) by investing activities:
Purchases of short-term investments	(2,937)	(4,783)
Maturities of short-term investments	1,715	3,613
Sales of short-term investments	2,072	2,496
Additions to property, plant and equipment	(1,119)	(1,028)
Disposals of property, plant and equipment	5	3
Other investing activities.	--	(25)
Cash provided (used) by investing activities	(264)	276
Cash used by financing activities:
Long-term debt payments, including current portion	(6)	(6)
Increase (decrease) in notes payable	(325)	13
Payments on capital lease and other financing obligations	(27)	(23)
Proceeds from exercise of stock options and other stock issuances	700	733
Repurchase of common stock	(4,286)	(4,254)
Dividendscommon and preferred	(1,332)	(1,243)
Tax payments for net share settlement of equity awards	(17)	(55)
Cash used by financing activities	(5,293)	(4,835)
Effect of exchange rate changes on cash and equivalents	(129)	45
Net increase (decrease) in cash and equivalents	217	441
Cash and equivalents, beginning of year	4,249	3,808
Cash and equivalents, end of year	$4,466	$4,249

As of May 31, there were the approximate shares outstanding: 2019 - 1,253 million 2018 - 1,272 million As of May 31, the company's stock closed at the following values: 2019 - $77.14 2018 - $71.80

(a) Compute and compare the Altman Z-scores for both years. (Do not round until your final answer; then round your answers to two decimal places.) 2019 Z-score = Answer 2018 Z-score = Answer

Which of the following explain the trend in the Z-scores from 2018 to 2019? (Select all that apply.) (Yes or No?) Answeryesno Nike improved its working capital by decreasing its current liabilities. Answeryesno Nike decreased its liquidity due to an increase in retained earnings. Answeryesno Nike improved its earnings before interest and taxes by increasing its total net sales. Answeryesno The market value of Nike's equity improved over the year. (b) Which of the following statements best describes the company's Altman Z-scores?

Both the Altman Z-scores are above 3.00 which indicate the company has a very low probability of bankruptcy.

Both the Altman Z-scores are below 1.80 which indicate the company has a very high probability of bankruptcy.

The Altman Z-scores have increased from 2018 to 2019 which indicates the company's bankruptcy risk has decreased.

The Altman Z-scores have decreased from 2018 to 2019 which indicates the company's bankruptcy risk has decreased.

Answer & Explanation Solved by verified expert

See Answer