Nike’s principal business activity involves the design, development, and worldwide marketing of high-quality footwear, apparel, equipment, and accessory products for serious and recreational athletes. Almost 25,000 employees work for the firm. Nike boasts the largest worldwide market share in the athletic-footwear industry and a leading market share in sports and athletic apparel.
This case uses Nike’s financial statements and excerpts from its notes to review important concepts underlying the three principal financial statements (balance sheet, income statement, and statement of cash flows) and relationships among them. The case also introduces tools for analyzing financial statements.
Balance Sheet
a. Why do accounts receivable appear net of allowance for doubtful accounts? Identify the events or transactions that cause the allowance account to increase or decrease.
b. Identify the depreciation method(s) that Nike uses for its buildings and equipment. Does Nike’s choice of depreciation method(s) seem appropriate?
c. Nike includes identifiable intangible assets on its balance sheet as an asset. Does this account include the value of the Nike name and Nike’s “swoosh” trademark? Explain.
d. Nike includes deferred income taxes among current assets, noncurrent assets, and noncurrent liabilities. Under what circumstances will deferred income taxes give rise to an asset? To a liability?
e. Nike reports accumulated other comprehensive income of $367.5 million at the end of 2009 and $251.4 million at the end of 2008, implying that other comprehensive income items amounted to $116.1 million during 2009. Why is this “income” reported as part of shareholders’ equity and not part of net income in the income statement?