Classify Items As Assets, Liabilities, And Stockholders

Classify Items As Assets Liabilities And Stockholders

Classify each of these items as an asset, liability, or stockholders' equity, and determine the total dollar amount for each classification. Also, determine Nike's accounting equation by calculating the total assets, total liabilities, and total stockholders' equity. Finally, analyze the extent to which Nike relies on debt versus equity financing.

Paper For Above instruction

Nike, Inc., as one of the world's leading manufacturers of athletic footwear, apparel, and equipment, provides a comprehensive balance sheet that allows for an analysis of its financial structure. This paper aims to classify the given balance sheet items into assets, liabilities, and stockholders' equity, compute the totals for each, and interpret Nike's reliance on debt versus equity financing.

Classification of Balance Sheet Items

The first step involves categorizing each item. Assets are resources owned by Nike that have future economic benefits. Liabilities are obligations or debts owed to outside parties, and stockholders' equity represents the residual interest in Nike's assets after deducting liabilities.

• Assets:
  • Cash: $2,291 million
  • Accounts receivable: $2,883 million
  • Inventory: $2,357 million
  • Equipment: $1,957 million
  • Buildings: $3,759 million
• Liabilities:
  • Income taxes payable: $86 million
  • Notes payable: $342 million
  • Accounts payable: $2,815 million
  • Mortgage payable: $1,311.5 million
• Stockholders' Equity:
  • Common stock: $2,874 million
  • Retained earnings: $5,818 million

Calculation of Total Assets, Liabilities, and Equity

Calculating totals involves summing the respective classified items:

Total Assets

• $2,291 (Cash) + $2,883 (Accounts receivable) + $2,357 (Inventory) + $1,957 (Equipment) + $3,759 (Buildings) = $13,247 million

Total Liabilities

• $86 (Income taxes payable) + $342 (Notes payable) + $2,815 (Accounts payable) + $1,311.5 (Mortgage payable) = $4,554.5 million

Total Stockholders' Equity

• $2,874 (Common stock) + $5,818 (Retained earnings) = $8,692 million

Analysis of Nike’s Financing Structure

Nike’s total assets amount to $13,247 million, financed through both debt and equity. The total liabilities, representing debt obligations, are $4,554.5 million, while stockholders’ equity stands at $8,692 million. The proportion of assets financed through debt is calculated as:

• Debt financing ratio: $4,554.5 million / $13,247 million ≈ 34.4%

Conversely, the remaining approximately 65.6% of assets are financed through equity. This indicates that Nike predominantly relies on equity financing, with a significant but smaller portion funded through debt.

Implications of Nike’s Financial Structure

The relatively low reliance on debt suggests that Nike maintains a conservative financial leverage position, which reduces financial risk and interest burden, and provides flexibility for future growth and investment. The substantial equity base indicates strong retained earnings and investor confidence, supporting the company's stability and expansion potential.

Conclusion

In summary, Nike’s balance sheet items are effectively classified into assets, liabilities, and stockholders’ equity. The company’s financial structure demonstrates a balanced approach, with a majority of assets financed through equity and a manageable level of debt. This leverage position supports Nike's strategic initiatives while minimizing financial risk, aligning with its reputation for sound financial management.

References

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