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Institute of International Finance EducationDUA L DE G RE E P RO G RA MME - DDP
NIKE FINANCIALREPORT
Trang 2Accounting in Accordance with IAS & IFRS 6
IAS02: INVENTORY 6
IAS16: PROPERTY, PLANT AND EQUIPMENT 9
IAS38: INTANGIBLE ASSET 15
Trang 3 The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area It is the world's largest supplier of athletic shoes and apparel and a major manufacturer of sports equipment.
The group's brand was valued at $29.6 billion in 2017, growing to be the most valuable brand in the sporting goods trade Nike ranked 89th in the 2018 Fortune 500 list of the largest United States corporations by total revenue.
Stage of development of Nike:
Main product
NIKE Brand product offerings are aligned around our consumer constructfocused on Men’s, Women’s, and Kids’ They also design products specifically for the Jordan Brand and Converse
Sport Apparel: Nike produces a wide range of sports equipment and apparel Nike's range of products includes shoes, jerseys, shorts, cleats, baselayers, etc for sports activities such as association football, basketball, track and field, combat sports, tennis, American football,
Trang 4athletics, golf, ice hockey, and cross-training for men, women, and children Nike also sells shoes for activities such as skateboarding, baseball, cycling, volleyball, wrestling, cheerleading, lacrosse, cricket, aquatic activities, auto racing, and other athletic and recreational uses. Street fashions: The Nike brand quickly became regarded as a status
symbol in modern urban fashion and hip-hop fashion due to its association with success in sports.
Main market
Nike's most significant markets include North America, China, and Western Europe, where the firm performs segmentations more and focuses on urban areas.
Nike consistently generates more revenue from North America than any other region.
Compare with key competitor
Nike and Adidas have always been obvious competitors/rivals in their space Both of them focus on sportswear and the shoes they specialize in Both companies have a long history of producing high-quality athletic gear, footwear, and accessories, and have gained a loyal following of customers who appreciate their commitment to innovation, performance, and style.
Trang 5Characteristics of the operation
Nike, Inc is a worldwide firm specializing in producing and marketing athletic shoes, clothes, and gear for various sports and activities (Almeida& Lemes, 2020) Nike's main business is footwear, which generates more than 60% of its annual income.
Nike sells its wares using a multi-pronged strategy, including operated storefronts, online marketplaces, and independent sellers To achieve this, revenue and COGS must be meticulously monitored across all sales channels Nike is also challenged with managing inventory obsolescence, particularly important for items supplied via distributors. Nike's choice and use of accounting standards are influenced by the
company-aspects above of the company's business activities They must adhere to revenue recognition standards to ensure accurate revenue recording across all sales channels, including the correct recognition of sales returnsand allowances (Almeida, N S D., & Lemes, S (2020)) Finally, Nike must use designated depreciation techniques to spread out its R&D costs across the lifetime of the products Nike's accounting must be rigorous and exact because of the nature of its company operations.
Accounting in Accordance with IAS & IFRSIAS02: INVENTORY
1 Raw materials:
Nike primarily uses six raw materials for its footwear manufacturing: Polyester, Rubber, EVA foam, Cotton, Synthetic Leather, and Leather
2 Finished goods:
Trang 6 Nike markets its products under its own brand, as well as Nike Golf, NikePro, Nike+, Air Jordan, Nike Blazers, Air Force 1, Nike Dunk, Air Max, Foamposite, Nike Skateboarding, Nike CR7, and subsidiaries including Air Jordan and Converse
3 Suppliers:
According to Investopedia, Nike has over 1,500 different material vendors, suppliers, and companies Pou Chen Corporation is the largest manufacturer of branded athletic and casual footwear in the world and one of Nike's key suppliers Other key suppliers include PT Pan Brothers,Fulgent Sun Group, Delta Galil Industries and Eagle Nice International Holdings
Nike is supplied by 122 footwear factories located in 12 countries For fiscal 2020, contract factories in Vietnam, Indonesia, and China manufactured approximately 50%, 24%, and 22% of total Nike Brand footwear, respectively
Nike also relies on technology companies, equipment suppliers, professional services firms, and other suppliers to carry out its operations.Here are a handful of key Nike suppliers operating in countries around the world
4 Cost of inventory
NIKE uses the LIFO (Last-In-First-Out) method for inventory valuation This means that the last items that are produced or purchased are the first items that are sold This method is commonly used in industries where the cost of goods sold is rising over time
Trang 85 Cost of sale
The largest expenses for Nike are the costs of sales (mostly inventory andwarehousing), that account for more than $21 billion per year Nike's costof goods sold for the twelve months ending February 28, 2023 was $28.426B, a 12.85% increase year-over-year
6 Compare nike and adidas for inventory
Net realizable value of inventories based upon our assumptions about future demand and market conditions
Finished goods and merchandise are valued at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale
Trang 9IAS16: PROPERTY, PLANT AND EQUIPMENT1 Type of PPE:
Asset age ratios:
X May 31, 2022 May 31, 2021May 31, 2020
Average age ratio Nike Inc average age ratio of depreciable property, plant and equipment deteriorated from 2020 to 2021 and from 2021 to 2022.
Estimated total useful life
Nike Inc average age ratio of depreciable property, plant and equipment deteriorated from 2020 to 2021 and from 2021 to 2022.
Estimated time elapsed since purchase
Nike Inc estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2020 to 2021 and from 2021 to 2022.
Estimated remaining life
Nike Inc estimated remaining life of depreciable property, plant and equipment decreased from 2020 to 2021 but then increased from 2021 to 2022 not reaching 2020 level.
Type of PPEEstimated Useful
Depriciation Method
Asset age ration
Estimated total useful life (years)Estimated age, time elapsed since purchase (years)Estimated remaining life (years)
Trang 10Land and
Straight – line basisBuildings3-18 yearsGoods storage, Adminstration
Machines and
equipment1 - 20 years
Retail, Goods storage,ProductionInternal-use
software3 - 15 years
Management and calculation,job supportConstruction in
processN/ABring future economic benefit
The entity use the straight-line method to determine the depreciation of PPE.
The estimated useful lives of PPE are generally as follows:
Any asset has a useful life >1 year
Useful life is an estimation of the length of time the asset can reasonably be used to generate income and be benefit to the company
Useful life does not refer to the length of time the asset will last Depreciation and amortization of assets used in manufacturing,
warehousing and product distribution are recorded in cost of sales Depreciation and amortization of all other assets are recorded in operatingoverhead expense.
2 Determine cost of PPE
Cost of PPE is calculated as the total of all expenditure for the asset in conditionready for intended use
3 Assets impairment of PPE
The entity evaluate long-lived assets for indicators of impairment whenever events or changes in circumstances indicate their carrying amounts may not be recoverable
4 Trend in PPE movement over 3 years
Trang 11Machinery and equipment 2,751 3,023 2,870
330Land and improvements
Trang 12
2020 2021 20222.6
2.87Machinery and equipment
1.62Internal-use software
1.71Leasehold improvements
Trang 132020 0 2021 202250
399Construction in process
Property, plant and equipment value
Property, plant and equipment, grossAccumulated depreciationProperty, plant and equipment, net
Comment: Nike's PPE costs almost all tend to increase every year just because the cost of Land and improvements shows signs of decreasing, Plant and equipment costs make up the majority of PPE in the period from 2020-2022
Trang 145 Compare with Adidas
(US in milions $ )
4,791Property, plant and equipment of NIKE
2,279Property, plant, and equipment of ADIDAS
COMPARE: Although Nike's PPE cost is higher than Adidas' PPE cost in the past 3 years, Nike's PPE cost tends to decrease while Adidas' PPE cost tends to increase.
Trang 15IAS38: INTANGIBLE ASSET1 Intangible asset of Nike:
The Company performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value
Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks The Company may first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary
The information regarding their intangible assets, including assets recognized from the company’s acquisitions, was as follows (in millions):
Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks.
Trang 162 Amortization of intangible assets:
The company is following the straight-line method and similar with accounting depreciation PPE
Amortization expense during the years ended May 31, 2020, 2021,2022 was $19 million, $27 million, $39 million respectively
Ø Nike's shoes and shops would be tangible assets, while the brand
recognition that comes through marketing partnerships with sports stars would be an intangible asset Nike's most valuable intangible asset is undoubtedly its brand.
Ø Brand value of the sports company Nike worldwide from 2020-2022
Brand value in million U.S dollars
Brand value in million U.S dollars
2020: 34,492,000$2021: 30,443,000$2022: 33,176,000$
Trang 173 Comparison between Nike’s intangible assets and Adidas’s intangibleasset:
NIKE goodwill and intangible assets for 2022 were $0.57B, a 11.55% increase from 2021. NIKE goodwill and intangible
assets for 2021 were $0.511B, a 2.82% increase from 2020. NIKE goodwill and intangible
assets for 2020 were $0.497B, a 13.73% increase from 2019.
Adidas AG goodwill and intangible assets for the quarterending September 30, 2022 were $1.781B, a 0.98% declineyear-over-year.
Adidas AG goodwill and intangible assets for 2021 were $1.869B, a 25.95% decline from 2020.
Adidas AG goodwill and intangible assets for 2020 were $2.524B, a 6.9% decline from 2019.
4 Research and development:
Research and development expenditure of Nike were $349 and $189 respectively.
Research and development play a key role in technical innovation The company relies upon specialists in the fields of biomechanics, chemistry, exercise physiology, engineering, digital technologies, industrial design, sustainability and related fields, as well as research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts to develop and test cutting-edge performance products.
Trang 18IFRS15: REVENUE
1 Production and service performance
Trang 192 Component of revenue over 3 years
13.00% 5.00%
FISCAL 2022
North AmericaEMEAGreater ChinaAPLAGlobal Brand DivisionConverseCorporate
Trang 203 Line chart change of revenue over 3 years
Nike's Revenue over 3 years
+ Reasons for significant change:
-On a reported basis, in part due to improved physical retail traffic, and the addition of new stores.
4 Revenue recognition
- Revenue transactions associated with the sale of NIKE Brand footwear, apparel and equipment, as well as Converse products, comprise a single performance obligation, which consists of the sale of products to customers either through wholesale or direct to consumer channels The Company satisfies the performance obligation and records revenues whentransfer of control to the customer has occurred, based on the terms of sale A customer is considered to have control once they are able to direct the use and receive substantially all of the benefits of the product.