Current Assets And Property, Plant, And Equipment

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Assets Current Assets$9,630$8,710 Property, plant, and equipment (net)2,000/1,850 Other assets1,530/1,600 Total assets$13,160/$12,160 Liabilities and Stockholders' Equity Current Liabilities$3,240/$3,330 Long-term liabilities1,290/1,350 Stockholders’ equity8,6307,540 Total liabilities and stockholders' equity$13,160/$12,160 (a) Prepare a horizontal analysis of the balance sheet data for Nike, using 2021 as a base. (b) Prepare a vertical analysis of the balance sheet data for Nike for 2022.

Paper For Above instruction

Introduction

The analysis of a company's financial statements is vital for understanding its financial health, operational efficiency, and strategic position. Nike Inc., a leading multinational corporation in the apparel, footwear, and sports equipment industry, periodically releases its balance sheet, which provides insights into its assets, liabilities, and equity. This paper conducts two types of analysis on Nike's balance sheet data for 2022 and 2021: horizontal analysis, which measures the percentage change over time to identify growth or decline, and vertical analysis, which examines each component's proportion relative to total assets for a specific year. Using these analytical tools, investors and stakeholders can better interpret Nike's financial performance and position in the market.

Horizontal Analysis of Nike's Balance Sheet (2021 - 2022)

Horizontal analysis involves comparing financial statement figures across periods to ascertain trends and growth patterns. Utilizing the 2021 data as the base year, the focus is on calculating the percentage change for each line item in 2022.

• Current Assets: Increased from $8,710 million in 2021 to $9,630 million in 2022. The percentage change is ((9,630 - 8,710) / 8,710) × 100 = 10.55%. This growth indicates an increase in Nike's short-term assets, possibly due to higher cash reserves, receivables, or inventories to support increased sales or operational expansion.
• Property, Plant, and Equipment (Net): Grew from $1,850 million to $2,000 million. The change percentage is ((2,000 - 1,850) / 1,850) × 100 = 8.11%. This slight increase suggests capital investments in facilities or equipment, enhancing production capacity or operational efficiency.
• Other Assets: Decreased marginally from $1,600 million to $1,530 million, reflecting a decline of ((1,530 - 1,600) / 1,600) × 100 = -4.38%. This may be due to asset disposals or revaluation adjustments.
• Total Assets: Rose from $12,160 million to $13,160 million, representing a growth of ((13,160 - 12,160) / 12,160) × 100 = 8.14%. The overall increase indicates nominal expansion of Nike's total holdings.

Vertical Analysis of Nike's Balance Sheet (2022)

Vertical analysis presents each line item as a percentage of total assets for 2022, offering insight into the company's asset composition and financial structure.

• Current Assets: Represented as ($9,630 / $13,160) × 100 ≈ 73.19%, indicating a significant portion of Nike's assets are liquid or short-term assets, essential for operational liquidity.
• Property, Plant, and Equipment (Net): Constitutes ($2,000 / $13,160) × 100 ≈ 15.20%. This highlights the capital investments Nike has made in its physical infrastructure, essential for manufacturing and logistics.
• Other Assets: Account for ($1,530 / $13,160) × 100 ≈ 11.63%, reflecting non-current or intangible assets, such as trademarks or investments.
• Total Assets: By definition, always 100%, serving as the denominator for each component’s percentage.

Discussion and Implications

These analyses reveal Nike’s strategic focus and financial stability. The increase in current assets suggests a readiness to meet short-term obligations and support growth initiatives. The proportion of property, plant, and equipment indicates sustained investment in physical assets, underpinning manufacturing capacity. The slight decline in other assets might signal asset optimization or disposal of less productive assets.

Understanding the proportional composition of assets through vertical analysis aids stakeholders in assessing the company's operational leverage and liquidity profile. The high percentage of current assets emphasizes a solid liquidity position, necessary for sustaining day-to-day operations, especially in a competitive and dynamic industry such as sportswear and apparel.

Both analyses together provide a comprehensive view of Nike’s financial trajectory. The positive growth in total assets, coupled with a stable asset composition, suggests a company expanding its operations without compromising on liquidity or investment in essential assets. These insights are critical for investors considering Nike's future prospects and financial strategies.

Conclusion

Periodic financial analysis like horizontal and vertical assessments are instrumental in unveiling the underlying operational and financial trends of companies like Nike. The data suggests consistent growth, strategic capital investment, and a balanced asset composition, positioning Nike well for ongoing commercial success. Stakeholders should continuously monitor these metrics to ensure alignment with market conditions and corporate objectives, facilitating informed decision-making and strategic planning.

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