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Microsoft Excel LibreOffice Calc

Nike Inc. (NKE)


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

NIKE 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. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation that the carrying amount may not be recoverable, among other factors. NIKE may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, NIKE determines it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, an impairment test is unnecessary. If an impairment test is necessary, NIKE will estimate the fair value of its related reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is determined to be impaired and NIKE will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. NIKE 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, NIKE determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for these intangible assets, NIKE primarily utilizes the relief-from-royalty method. This method assumes trade names and trademarks have value to the extent their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires NIKE to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. If the carrying value of the indefinite-lived intangible exceeds its fair value, the asset is determined to be impaired and NIKE will proceed with recording an impairment charge equal to the excess of the carrying value over the related fair value.

Source: 10-K (filing date: 2019-07-23).


Goodwill and Intangible Assets Disclosure

Nike Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

Item Description The company
Identifiable intangible assets, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
Identifiable intangible assets and goodwill Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Nike Inc.’s identifiable intangible assets and goodwill increased from 2017 to 2018 but then slightly declined from 2018 to 2019.

Analyst Adjustments: Removal of Goodwill

Nike Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Shareholders’ equity (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).


Nike Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Nike Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Nike Inc.’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Nike Inc.’s adjusted financial leverage increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Nike Inc.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Nike Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 not reaching 2017 level.

Nike Inc., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Revenues hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Revenues hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

2019 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Nike Inc.’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

2019 Calculations

1 Financial leverage = Total assets ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Nike Inc.’s adjusted financial leverage increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

2019 Calculations

1 ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net income ÷ Adjusted shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Nike Inc.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Nike Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 not reaching 2017 level.