2-Nike_solution - Nike-Basic Ratio Analysis a. i. ROE...

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a. i. ROE decomposition NI EBT EBT EBIT EBIT Sales Sales Total Assets Total Assets Common Equity ROE 2001 589.7 921.4 921.4 980.1 980.1 9,488.8 9,488.8 5,819.6 5,819.6 3,494.5 0.64 0.94 0.10 1.63 1.67 16.87% 2002 668.3* 1,017.3 1,017.3 1,064.9 1,064.9 9893 9,893 6,443 6,443 3,839 0.66 0.96 0.11 1.54 1.68 17.41% * This calculation uses net income before the accounting change because it was a one-time event and a very small number. EBIT uses EBT plus interest expense (thus operating margins include ‘other income/expense’). Return on equity has increased slightly during 2002 from 16.87% to 17.41%. Efficiency (sales / assets) dropped somewhat, but was offset by the higher margins, lower interest, and lower taxes. However, none of these component parts of the ROE calculation changed significantly. Nike is consistently profitable over the two-year period analyzed. a. ii. Common-size income statements 2002 2001 2000 $million % $million % $million % Sales 9,893.0 100.0% 9,488.8 100.0% 8,995.1 100.0% Cost of sales 6,004.7 60.7% 5,784.9 61.0% 5,403.8 60.1% Selling and admin 2,820.4 28.5% 2,689.7 28.4% 2,606.4 29.0% Interest expense 47.6 0.5% 58.7 0.6% 45 0.5% Other income/expense 3 < 0.1% 34.1 0.4% 20.7 0.2% Total cost and expenses 8,875.7 89.7% 8,567.4 90.3% 8,075.9 89.8% Income before taxes and before accounting change 1,017.3 10.3% 921.4 9.7% 919.2 10.2% Income tax 349 3.5% 331.7 3.5% 340.1 3.8% Income before accounting change 668.3 6.8% 589.7 6.2% 579.1 6.4% Accounting change 5 0.1% 0 0.0% 0 0.0% Net income 663.3 6.7% 589.7 6.2% 579.1 6.4% Nike is marginally more profitable in 2002 than in the prior two years in both dollar and percentage terms. Nike’s most significant expense is cost of sales which has held steady at around 61% for the past two years. All other
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This note was uploaded on 05/04/2008 for the course ACCT 3320 taught by Professor Frankzhang during the Summer '06 term at University of Texas at Dallas, Richardson.

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2-Nike_solution - Nike-Basic Ratio Analysis a. i. ROE...

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