Forecasting the Income Statement, Balance Sheet, and Statement of Cash Flows Fol
ID: 2536712 • Letter: F
Question
Forecasting the Income Statement, Balance Sheet, and Statement of Cash Flows
Following are the financial statements of Nike, Inc.
We forecast Nike's income statement using the following forecast assumptions:
Instructions: Forecast Nike's fiscal year 2012 income statement.
Assume no change for: other income and interest expense.
Round forecasts to $ millions.
Do not use negative signs with your answers in the income statement.
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We forecast Nike's balance sheet using the following forecast assumptions:
Instructions: Forecast Nike's fiscal year 2012 balance sheet.
Assume no change for: short-term investments, goodwill, notes payable, common stock, capital in excess of stated value and accumulated other comprehensive income.
Round forecasts to $ millions.
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Instructions: Forecast Nike's fiscal year 2012 stastement of cash flows.
Remember to use negative signs with your answers below, when appropriate.
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Consolidated Statements of Income Year ended May 31 In Millions 2011 2010 Revenues $ 20,862 $ 19,014 Cost of sales 11,354 10,214 Gross profit 9,508 8,800 Demand creation expense 2,448 2,356 Operating overhead expense 4,245 3,970 Total selling and administrative expense 6,693 6,326 Interest expense (income), net 4 6 Other (income) (33) (49) Income before income taxes 2,844 2,517 Income taxes 711 610 Net income $ 2,133 $ 1,907Explanation / Answer
Nick's Forecasted Income Statement
($ millions)
2011
Assumptions
2012 Est.
Revenues.................................
20,862
20,862
x
1.10
22,948
Cost of sales............................
11,354
22,948
x
54.4%
12,484
Gross margin...........................
9,508
10,464
Demand creation expense........
2,448
22,948
x
11.7%
2,685
Operating overhead expense...
4,245
22,948
x
20.3%
4,658
Interest expense (income), net
4
4
Other (income).........................
(33)
(40)
Income before income taxes....
2,844
3,157
Income taxes............................
711
3,157
x
25.0%
789
Net income...............................
2,133
2,368
Balance Sheet
($ millions)
2011
Assumptions
2012 Est.
Cash and equivalents...........
$
1,955
22,948
x
9.4%
$
2,157
Short-term investments.......
2,583
2,583
New investments.................
0
plug
946
Accounts receivable, net.....
3,138
22,948
x
15.0%
3,442
Inventories...........................
2,715
22,948
x
13.0%
2,983
Deferred income taxes.........
312
22,948
x
1.5%
344
Prepaid expenses and other current assets..................
594
22,948
x
2.8%
643
Total current assets.............
11,297
13,098
Property, plant and equipment, net ................
2,115
+
482
-
366
2,231
Identifiable intangible assets, net........................
487
-
24
463
Goodwill..............................
205
205
Deferred income taxes and other assets......................
894
22,948
x
4.3%
987
Total assets.........................
$
14,998
$
16,984
Current portion of long-term debt..................................
$
200
$
48
Notes payable......................
187
187
Accounts payable................
1,469
22,948
x
7.0%
1,606
Accrued liabilities................
1,985
22,948
x
9.5%
2,180
Income taxes payable..........
117
789
x
16.5%
130
Total current liabilities........
3,958
4,151
Long-term debt....................
276
-
48
228
Deferred income taxes and other liabilities.................
921
22,948
x
4.4%
1,010
Common stock at stated value.................................
3
3
Capital in excess of stated value.................................
3,944
3,944
Accumulated other comprehensive income....
95
95
Retained earnings................
5,801
+
2,366
-
616
7,553
Total shareholders' equity...
9,843
11,595
Total liabilities and shareholders' equity.........
$
14,998
$
16,984
Nike’s Forecasted Statement of Cash Flows
($ millions)
Assumptions
2012 Est.
Net income...............................................
$
2,368
Add: depreciation.....................................
366
Add: amortization.....................................
24
Chg. Accounts receivable.........................
3,138
-
3,442
(304)
Chg. Inventories.......................................
2,715
-
2,983
(268)
Chg. Deferred income taxes.....................
312
-
344
(32)
Chg. Prepaid expenses and other current assets....................................................
594
-
643
(49)
Chg. L-T Deferred income taxes and other assets..........................................
894
-
987
(93)
Chg. Accounts payable.............................
1,606
-
1,469
137
Chg. Accrued liabilities............................
2,180
-
1,985
195
Chg. Income taxes payable.......................
130
-
117
13
Chg. L-T Deferred income taxes and other liabilities.................................................
1,010
-
921
89
Net cash from operating activities ............
2,446
Capital expenditures..................................
22,948
x
2.1%
(482)
Purchase of investments............................
(946)
Net cash from investing activities .............
(1,428)
Dividends...................................................
2,368
x
26.0%
(616)
Payments of LT Debt..................................
(200)
Net cash from financing activities ............
(816)
Net change in cash.....................................
202
Beginning cash..........................................
1,955
Ending cash...............................................
$
2,157
Summary: Our initial balance sheet reports total assets of $16,039 million and total liabilities and equity of $16,984 million. To balance the balance sheet, we can either reduce liabilities (i.e., pay down debt) or increase assets (i.e., purchase investments). Since Nike does not have a significant amount of short-term debt, we chose to increase marketable securities by $945 million. Nike’s return on investments was about 1.4% ($33 million / (($2,583 + 2,067)/2) million) in 2011. We assume that the company will realize the same return on investment in 2012 and that the additional investments will be purchased ratably over the year. Consequently, our forecast of investment income increases by $7 million ([$945 million / 2] x 1.4%) from $33 million to $40 million.
($ millions)
2011
Assumptions
2012 Est.
Revenues.................................
20,862
20,862
x
1.10
22,948
Cost of sales............................
11,354
22,948
x
54.4%
12,484
Gross margin...........................
9,508
10,464
Demand creation expense........
2,448
22,948
x
11.7%
2,685
Operating overhead expense...
4,245
22,948
x
20.3%
4,658
Interest expense (income), net
4
4
Other (income).........................
(33)
(40)
Income before income taxes....
2,844
3,157
Income taxes............................
711
3,157
x
25.0%
789
Net income...............................
2,133
2,368
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