****Use Nike\'s May 31, 2017 10-k to answer the following questions**** ***Pleas

Question

****Use Nike's May 31, 2017 10-k to answer the following questions****

***Please clearly label answers to each question by A,B & C***

1. Financial Ratio Analysis
A. Using Nike's financial statements and any additional resources if necessary, determine which part of Nike’s Balance Sheet and Income Statement represent OPERATING assets, OPERATING liabilities and Operating income.

B.Then calculate NOPAT (Net operating profit after tax), NOA (net operating asset), RNOA (return on net operating asset), and Gross Profit Margin for 2017, 2016, and 2015 using the definition of these ratios. Compare these numbers and ratios across the three years and indicate any trends. Please make any necessary adjustment to income statement and balance sheet numbers as you see fit, e.g.: remove non-operating assets and liabilities from both the income statement and the balance sheet. For tax, please simply use Nike’s average tax rate when calculating NOPAT.

C. Show the decomposition of Nike’s RNOA into NOPM (net operating profit margin) and NOAT (net operating asset turnover) using the numbers from part a. for both 2017, 2016, and 2015. What do these ratios suggest about the change of performance of Nike across the past three years?

NIKE, Inc. Consolidated Statements of Income Year Ended May 31, 2016 In millions, except per share data) 2017 2015 34,350 $ 19,038 15,312 3,341 7,222 10,563 32,376 $ 30,601 16,534 14,067 3,213 6,679 9,892 28 Cost of sales Gross profit Demand creation expense 17,405 14,971 3,278 10,469 19 Total selling and administrative expense Interest expense (income), net Other (income Income before income taxes Income tax NET INCOME 59 net 4,623 863 4,205 932 3,273 4,886 4,240 S$ 3,760 $ Earnings per common share 2.56 $ 2.51 2.21 $ 2.16 $ Basic 1.90 Diluted 1.85 0.62 $ The accompanying Notes to the Consoidated Fnancial Statements areanintegral part of this statement.

Explanation / Answer

Part A:

Operating assets are cash, prepaid expenses, accounts receivable or debtors, inventory and fixed assets. Operating liabilities on the other hand include accounts payable and accrued liabilities. Thus, the following screen shot of the Balance sheet of the company shows the operating assets and liabilities.         

Operating income of the company is the income before income taxes, thus, the operating income of the company as per the income statement of the company is $4886 million for the year ending on May 31, 2017.

Part B:

2017

2016

2015

Net operating profit after tax:

Income before income taxes

4886

4623

4205

Less: Income tax expense

646

863

932

Net operating profit after tax:

4240

3760

3273

Net operating assets:

Operating asset

Total current assets

16061

15025

Fixed assets:

Property, plant and equipment

3989

3520

Identifiable intangible asset

283

281

Goodwill

139

131

(A): Total operating assets:

20472

18957

Operating liabilities:

Total current liabilities

5474

5358

(B): Total operating liabilities

5474

5358

Net operating assets (A-B)

14998

13599

Return on net operating asset

Net operating profit after tax:

4240

3760

Net operating assets (A-B)

14998

13599

28.27044

27.64909

Gross profit margin

2017

2016

2015

Revenue

34350

32376

30601

Gross profit

15312

14971

14067

Gross profit margin (Gross profit X 100 / Revenue)

44.57642

46.24104

45.96909

No, particular trend has been established from the above ratios as the gross profit margin of the company in 2016 increased from the gross profit margin of 2015 however, the gross profit margin of 2017 declined to the lowest out of the three years as mentioned in the document. However, the return on net operating asset in the year 2017 has been increased compare to the previous year return.

Part C:

2017

2016

2015

Net operating profit margin

Revenue

34350

32376

30601

Net operating profit

4240

3760

3273

Net operating profit margin

12.34352

11.61354

10.69573

Net operating asset turnover

(A): Revenue

34350

32376

(B): Net operating assets (A-B)

14998

13599

Net operating asset turnover (times) (A / B)

2.290305

2.380763

The operating performance of the company from the plain reading of the income statement clearly shows that the company’s financial performance have improved significantly. This is clear from the increase amount of revenue, gross profit and net profit of the company. However, the profitability ratios of the company shows that though the amount of revenue and profit have increased by the gross profit margin in te current year ending in ay 2017 has reduced from previous years.

2017

2016

2015

Net operating profit after tax:

Income before income taxes

4886

4623

4205

Less: Income tax expense

646

863

932

Net operating profit after tax:

4240

3760

3273

Net operating assets:

Operating asset

Total current assets

16061

15025

Fixed assets:

Property, plant and equipment

3989

3520

Identifiable intangible asset

283

281

Goodwill

139

131

(A): Total operating assets:

20472

18957

Operating liabilities:

Total current liabilities

5474

5358

(B): Total operating liabilities

5474

5358

Net operating assets (A-B)

14998

13599

Return on net operating asset

Net operating profit after tax:

4240

3760

Net operating assets (A-B)

14998

13599

28.27044

27.64909

Gross profit margin

2017

2016

2015

Revenue

34350

32376

30601

Gross profit

15312

14971

14067

Gross profit margin (Gross profit X 100 / Revenue)

44.57642

46.24104

45.96909

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