Financial Management

Assignment Question (please complete both tasks) 500 to 750 words per task

Task 1. “Critically analyse and interpret a set of company

accounts and evaluate the financial performance of the
company and suggest how it may be improved.”
Task 2. “Discuss the best way for the management of the
company in task 1 to decide whether to make a new
investment.”
The answers submitted should cover all the assessment criteria outlined below:
As well as being marked on each assessment criteria you will also be marked on, learning &
oraganisational skills:

Learning Outcomes and Assessment Criteria

1 Understand the importance of financial management to an organisation
• 1.1 Evaluate the importance of credit control within a Finance Department
• 1.2 Analyse how a company can adjust both its variable and fixed costs during economic
downturns
2 Be able to explain why companies need to raise finance for different purposes
• 2.1 Propose two sources of debt financing for a medium sized company for both the short
term and the long term
• 2.2 Propose ways a company can raise finance by equity financing
3 Be able to conduct an appraisal on the different options available to a company
wishing to invest specific amount of money
• 3.1 Write about the considerations that a company will need to make before making a major
investment
• 3.2 Evaluate a proposed investment by using payback ratio and dividend ratio explaining the
difference between them
4 Be able to demonstrate the importance of preparing reports on the state of an
organisation’s finances
• 4.1 Examine the published profit & loss account and balance sheet of an organisation
• 4.2 Propose reasons why it is more advantageous to use the cash flow statement rather than
the balance sheet when a company is applying for funds

Task 3: How Nike can adjust both its variable and fixed costs and illustrate importance of credit
control?

Nike
Business Summary
NIKE, Inc. designs, develops, and markets footwear, apparel, equipment, and accessory products for men,
women, and children worldwide. The company offers footwear in the categories of running, training,
basketball, soccer, sport-inspired casual shoes, and kids’ shoes. It also provides footwear for aquatic
activities, baseball, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis,
volleyball, walking, wrestling, and other athletic and recreational uses. In addition, the company sells
sports apparel and accessories, sports-inspired lifestyle apparel, and athletic bags and accessory items, as
well as apparel with licensed college and professional team and league logos. Further, it offers
performance equipment, including bags, socks, sport balls, eyewear, timepieces, electronic devices, bats,
gloves, protective equipment, golf clubs, and other equipment designed for sports activities under the
NIKE brand name. The company sells its products primarily through its retail stores and e-commerce,
retail accounts, independent distributors, franchisees, and licensees. As of May 31, 2010, it operated 346
retail stores in the United States and 343 retail stores internationally. The company was founded in 1964
and is headquartered in Beaverton, Oregon.
Financial Highlights

Profitability
Profit Margin (ttm): 10.26%
Operating Margin (ttm): 13.45%
Management Effectiveness
Return on Assets (ttm): 11.98%
Return on Equity (ttm): 21.22%
Income Statement
Revenue (ttm): 19.83B
Revenue Per Share (ttm): 41.17
Qtrly Revenue Growth (yoy): 9.90%
Gross Profit (ttm): 8.80B
EBITDA (ttm): 3.06B
Net Income Avl to Common (ttm): 2.03B
Diluted EPS (ttm): 4.14
Qtrly Earnings Growth (yoy): 21.90%
Balance Sheet
Total Cash (mrq): 4.79B
Total Cash Per Share (mrq): 10.01
Total Debt (mrq): 598.00M
Total Debt/Equity (mrq): 6.01
Current Ratio (mrq): 3.36
Book Value Per Share (mrq): 20.79
Cash Flow Statement

Operating Cash Flow (ttm):

2.43BLevered Free Cash Flow (ttm): 1.62B

Income Statement Nike

Period Ending May 31, 2010 May 31, 2009 May 31, 2008

Total Revenue 19,014,000 19,176,100 18,627,000

Cost of Revenue 10,213,600 10,571,700 10,239,600

Gross Profit 8,800,400 8,604,400 8,387,400

Operating Expenses

Research Development - - -

Selling General and Administrative 6,326,400 6,149,600 5,953,700

Non Recurring - 596,300 -

Others - - -

Total Operating Expenses - - -

Operating Income or Loss 2,474,000 1,858,500 2,433,700

Income from Continuing Operations

Total Other Income/Expenses Net 49,200 88,500 69,200
Earnings Before Interest And Taxes 2,516,900 1,956,500 2,502,900
Interest Expense - - -
Income Before Tax 2,516,900 1,956,500 2,502,900
Income Tax Expense 610,200 469,800 619,500
Minority Interest - - -

Net Income From Continuing Ops 1,906,700 1,486,700 1,883,400

Non-recurring Events
Discontinued Operations - - -
Extraordinary Items - - -
Effect Of Accounting Changes - - -
Other Items - - -

Net Income 1,906,700 1,486,700 1,883,400

Preferred Stock And Other Adjustments - - -

Net Income Applicable To Common Shares 1,906,700 1,486,700 1,883,400

Balance Sheet Nike

Period Ending

May 31, 2010 May 31, 2009 May 31, 2008

Assets
Current Assets
Cash And Cash Equivalents 3,079,100 2,291,100 2,133,900
Short Term Investments 2,066,800 1,164,000 642,200
Net Receivables 2,898,600 3,156,300 3,022,500
Inventory 2,040,800 2,357,000 2,438,400
Other Current Assets 873,900 765,600 602,300
Total Current Assets 10,959,200 9,734,000 8,839,300
Long Term Investments - - -
Property Plant and Equipment 1,931,900 1,957,700 1,891,100
Goodwill 187,600 193,500 448,800
Intangible Assets 467,000 467,400 743,100
Accumulated Amortization - - -
Other Assets - - -
Deferred Long Term Asset Charges 873,600 897,000 520,400
Total Assets 14,419,300 13,249,600 12,442,700
Liabilities
Current Liabilities
Accounts Payable 3,218,200 2,902,100 2,200,200
Short/Current Long Term Debt 146,000 374,900 179,600
Other Current Liabilities - - 941,700
Total Current Liabilities 3,364,200 3,277,000 3,321,500
Long Term Debt 445,800 437,200 441,100
Other Liabilities - - -
Deferred Long Term Liability Charges 855,300 842,000 854,500
Minority Interest - - -
Negative Goodwill - - -
Total Liabilities 4,665,000 4,556,000 4,617,100
Stockholders' Equity
Misc Stocks Options Warrants - - -
Redeemable Preferred Stock 300 300 300
Preferred Stock - - -
Common Stock 2,800 2,800 2,800
Retained Earnings 6,095,500 5,451,400 5,073,300
Treasury Stock - - -
Capital Surplus 3,440,600 2,871,400 2,497,800
Other Stockholder Equity 214,800 367,500 251,400
Total Stockholder Equity 9,753,700 8,693,100 7,825,300
Net Tangible Assets 9,099,100 8,032,200 6,633,400
Cash Flow Nike
View: Annual Data | Quarterly Data All numbers in thousands
Period Ending May 31, 2010 May 31, 2009 May 31, 2008
Net Income 1,906,700 1,486,700 1,883,400
Operating Activities, Cash Flows Provided By or Used In
Depreciation 395,500 383,300 321,500
Adjustments To Net Income 167,300 277,800 (220,200)
Changes In Accounts Receivables 181,700 (238,000) (118,300)
Changes In Liabilities 298,000 (220,000) 330,900
Changes In Inventories 284,600 32,200 (249,800)
Changes In Other Operating Activities (69,600) 14,100 (11,200)
Total Cash Flow From Operating Activities 3,164,200 1,736,100 1,936,300
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures (335,100) (455,700) (449,200)
Investments (931,300) (327,400) 380,400
Other Cash flows from Investing Activities (1,100) (15,000) (345,000)
Total Cash Flows From Investing Activities (1,267,500) (798,100) (413,800)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (505,400) (466,700) (412,900)
Sale Purchase of Stock (376,700) (462,600) (904,700)
Net Borrowings (32,200) (6,800) 28,500
Other Cash Flows from Financing Activities - 25,100 63,000
Total Cash Flows From Financing Activities (1,061,200) (733,900) (1,226,100)
Effect Of Exchange Rate Changes (47,500) (46,900) (19,200)
Change In Cash and Cash Equivalents 788,000 157,200 277,200

Currency in USD.