Nike Financial Report.pdf

 Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Blazers, Air Force 1, Nike Dunk, Air Max, Foamposite, Nike Skateboarding, Nike CR

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Institute of International Finance Education

DUA L DE G RE E P RO G RA MME - DDP

NIKE FINANCIAL

REPORT

Introduction 3

Accounting in Accordance with IAS & IFRS 6

IAS02: INVENTORY 6

IAS16: PROPERTY, PLANT AND EQUIPMENT 9

IAS38: INTANGIBLE ASSET 15

IFRS15: REVENUE 18

Introduction

Overview

 Nike, Inc is an American multinational corporation that is engaged in the design, development, manufacturing, and worldwide marketing and sales

of footwear, apparel, equipment, accessories, and services

 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 construct focused 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,

athletics, 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

Characteristics 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 company-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 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 returns and 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 & IFRS

IAS02: 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:

 Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, 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

5 Cost of sale

 The largest expenses for Nike are the costs of sales (mostly inventory and warehousing), that account for more than $21 billion per year Nike's cost

of 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

IAS16: PROPERTY, PLANT AND EQUIPMENT

1 Type of PPE:

 Asset age ratios:

X May 31, 2022 May 31, 2021 May 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 PPE Estimated Useful

Depriciation Method

—

2

4

6

8

10

12

14

16

14

Asset age ration

Estimated total useful life (years) Estimated age, time elapsed since purchase (years) Estimated remaining life (years)

Land and

improvements N/A Adminstration

Straight – line basis

Buildings 3-18 years Goods storage, Adminstration

Machines and

equipment 1 - 20 years

Retail, Goods storage, Production Internal-use

software 3 - 15 years

Management and calculation, job support Construction in

process N/A Bring 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 operating overhead expense

2 Determine cost of PPE

Cost of PPE is calculated as the total of all expenditure for the asset in condition ready 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

Machinery and equipment 2,751 3,023 2,870

(US in millions $)

310

320

330

340

350

360

370

345

363

330 Land and improvements

0.5

1

1.5

2

2.5

3

3.5

4

2.44

3.37

3.17 Buildings

2020 2021 2022 2.6

2.65

2.7

2.75

2.8

2.85

2.9

2.95

3

3.05

2.75

3.02

2.87 Machinery and equipment

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

1.48

1.39

1.62 Internal-use software

1.45

1.5

1.55

1.6

1.65

1.7

1.75

1.55

1.61

1.71 Leasehold improvements

2020 0 2021 2022 50

100

150

200

250

300

350

400

450

1.09

311

399 Construction in process

-8

-6

-4

-2

0

2

4

6

8

10

12

Property, plant and equipment value

Property, plant and equipment, gross Accumulated depreciation

Property, 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

5 Compare with Adidas

(US in milions $ )

4,720

4,740

4,760

4,780

4,800

4,820

4,840

4,860

4,880

4,900

4,920

4,866

4,904

4,791 Property, plant and equipment of NIKE

2,050

2,100

2,150

2,200

2,250

2,300

2,157

2,256

2,279 Property, 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

IAS38: INTANGIBLE ASSET

1 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

2 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

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

Ø Brand value of the sports company Nike worldwide from 2020-2022

28

29

30

31

32

33

34

35

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$

3 Comparison between Nike’s intangible assets and Adidas’s intangible asset:

 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 quarter ending September 30, 2022 were $1.781B, a 0.98% decline year-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

IFRS15: REVENUE

1 Production and service performance

2 Component of revenue over 3 years

38.15%

25.10%

18.07%

13.05%0.30% 5.02% 0.30%

FISCAL 2020

North America EMEA Greater China APLA Global Brand Division Converse Corporate

37.62%

25.74%

18.81%

11.88% 4.95% 0.99%

FISCAL 2021

North America EMEA Greater China APLA Global Brand Division Converse Corporate

39.00%

27.00%

16.00%

13.00% 5.00%

FISCAL 2022

North America EMEA Greater China APLA Global Brand Division Converse Corporate

3 Line chart change of revenue over 3 years

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

37403

Nike's Revenue over 3 years

Column2

+ 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 when transfer 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