III – CASH FLOW FROM ASSETS ANALYSIS DURING THE LAST TWO

YEARS

Opening:

Cash flow statement is adopted by firms and corporations to supply them with
information about company’s liquidity and solvency and its capability of changing
cash flows in the future, as well as to show investors how much cash that company
has generated. Analyzing cash flow statement will provide firms with a view of
management strategy.

1. Cash Flow from Operations:

Period Ending 2018 2017

Net Income $1,933B $4,24B
Operating Activities, Cash Flows Provided
By or Used In
Depreciation $774M $716M
Adjustments To Net Income $766M $-175M
Changes In Accounts Receivables $180M $-426M
Changes In Liabilities $1,515B $-158M
Changes In Inventories $-255M $-231M
Changes In Other Operating Activities $35M $-120M
Total Cash Flow From Operating Activities $4,955B $3,846B
Operating cash flow refers to the cash that generates from a firm’s normal business
activities. It is an important number because it tells, on a basic level, whether a
firm’s cash inflows from its business operations are sufficient to cover its everyday
cash outflows. According to the Cash Flow Statement above, for the last two years
(2017 and 2018), the total cash flows from operating activities increased
significantly with $1109000 thousands. This figure indicates that Nike seemed to
be doing great in its business. Similarity, that liabilities went up from -158000
thousand dollars to $1515000 thousands considered as a cash inflow of Nike
because this company had more cash to keep. Also, the rising of other operating
activities improved Nike’s cash flow from operating when it increased $155000
thousands from 2017 to 2018. Moreover, although there had been a small decrease
in inventories ($24000 thousands), it actually took the positive effect on operating
cash flow due to the fact that the company had purchased less goods than it had
actually sold; therefore, there was an additional inflow of cash. However, because
of the growth in accounts receivables, Nike had to suffer from a drain on cash but
fortunately, this change was marginal to the cash flow from operations.

2. Cash flow from Investing:

Investing Activities, Cash Flows Provided By

or Used In 2018 2017
Capital Expenditures $-1,028B $-1,105B
Investments $1,326B $118M
Other Cash flows from Investing Activities $-25M $-34M
Total Cash Flows From Investing Activities $276M $-1,008B

The money NIKE, Inc. utilizes in investing performance is recorded in items which
are Capital Expenditures, Investments and Other Cash flows from Investing
Activities. By and large, Total Cash flows from Investing Activities made an
increase from 2017 (-1,008B$) to 2018 (276M$). The following items also
expanded their numbers. It can be seen that Capital Expenditures (CAPEX) in two
years are both negative (-1,105B$ in 2017 and -1,028B$ in 2018). CAPEX is
defined as the amount of money spent by business to buy or improve assets. This
negative number refers that NIKE, Inc. sold more assets than it purchased. The
Investments in 2017 added 1,208B$ (1,326B$ - 118M$) in a year which is a
significant number. Other Cash flows from Investing Activities slightly grew from
-34M$ to -25M$.

3. Cash Flow from Financing Activities:

 Financing Activities, Cash Flows Provided 2018 2017
By or Used In
Dividends paid $-1,243B $-1,133B
Sales Purchase of Stock $733M $480M
Net Borrowings $-16M $1,748B
Other Cash Flows from Financing $5,757B $1,734B
Activities
Total Cash Flows from Financing Activities $-4,835B $-2,148B
Effect of exchange rate changes $45M $-20M
Change in Cash and Cash Equivalents $441M $670M

In the period of 2017 to 2018, Nike’s financing activities recorded in the cash flow
statement experienced some major differences. The three main components that
made significant changes to the financial activities are Sale purchase of stock, net
borrowings and other cash flows from financing activities. The amount of dividends
paid was around $1.2 billion per year and showed a sign of slight increase in 2018.

In the year of 2017, Nike sold more than $489 million in stock, paid dividends with
$1.133 billion. These two components sum up a result of approximately $644
million. In addition, the net borrowings of that year was $1,734 billion, which
means that the firm had to borrow more (Net borrowings in 2016 was $801
million) because it didn’t have enough cash flow from assets to cover the total of
dividends paid and sales purchase of stock.

In the year of 2018, $1,243 billion worth of stock was sold by Nike (increased by
$110 million from 2017) and at the same time the company had to pay off debt for
previous borrowings in 2017 which resulted into an increase in total cash flows
from Financing activities (from $-2,148 billion in 2017 to $-4,835 billion in 2018).
However, net borrowings witnessed a dramatic decrease to $-16 million from 2017

4. Cash flow from Assets:

2018 2017 2016

Net Working Capital (NWC)
Change in Net Working Capital
Net Capital Expenditure
Cash Flow From Operating
Activities (OCF)
Cash Flow from Assets (Free Cash
Flow)

Though receiving changes in Cash flow from assets, the company manages to keep
their firm growing healthily. In 2015, McDonald’s statistic shows positive statistics
of cash, they still have to take on increasing debt and decline in liquidity due to the
“makeup” for the financial cash flow activities, however, in 2016 their cash flow
from assets rise back quickly.

Ending:

The finale that worth noting in the statement is Change in Cash and Cash
Equivalents. It is clear from the statement that the Change In Cash and Cash
Equivalents, unlike Operating, Investing and Financing Activities, declined over a
third (from 670M$ to 441M$). Cash and Cash Equivalents are business's most
liquid asset; resulting from that, investors evaluate firm's liquidity and solvency
based on Change in Cash and Cash Equivalents. However, the decrease of Cash
and Cash Equivalents (CCE) of NIKE, Inc. is not an absolute disadvantage.
Although a high CCE are capable of helping company overcome hardships such as
low sales or high expenses, it may cause company's increase in spending, for
instance, on social welfare or raising salary.

Sources:

1. Yahoofinance.com
2. https://www.marketwatch.com/investing/stock/nke/financials/cash-flow
3. https://www.stock-analysis-on.net/NYSE/Company/Nike-Inc/Financial-
Statement/Statement-of-Cash-Flows?fbclid=IwAR0FWx7o-
5GNDy_4r2T_w_4G-jUBU5rj5Wp56didoR4Y7-vFop4KDhFUwSI