Question

Operating Section of Statement of Cash Flows (Indirect Method)
Assume following are the income statement and balance sheet for Nike for the year ended May 31, 2012, and a forecasted income statement and balance sheet for 2013.

Income Statement
($ millions)	2012 actual	2013 Est.
Revenues	$ 18,627.0	$ 21,253.0
Cost of sales	10,239.6	11,689.0
Gross margin	8,387.4	9,564.0
Selling and administrative expense	5,953.7	6,801.0
Operating profit	2,433.7	2,763.0
Interest income, net	77.1	77.1
Other (expense) income, net	(7.9)	(7.9)
Income before income taxes	2,502.9	2,832.2
Income taxes	619.5	672.0
Net income	$ 1,883.4	$ 2,160.2

Balance Sheet
($ millions)	2012 actual	2013 Est.
Assets
Cash and equivalents	$ 2,122.9	$ 3,325.4
Short-term investments	642.2	642.2
Accounts receivable, net	2,795.3	3,188.0
Inventories	2,438.4	2,770.0
Deferred income taxes	227.2	259.0
Prepaid expenses and other current assets	613.3	680.0
Total current assets	8,839.3	10,864.6
Property, plant and equipment*	4,103.0	4,613.0
Accumulated depreciation	(2,211.9)	(2,556.9)
Property, plant and equipment, net	1,891.1	2,056.1
Goodwill and other current assets	1,191.9	1,152.9
Deferred income taxes and other assets	520.4	594.0
Total Assets	$ 12,442.7	$ 14,667.6
Liabilities and Equity
Current portion of long-term debt	$ 6.3	$ 31.3
Notes payable	177.7	139.7
Accounts payable	1,287.6	1,470.0
Accrued liabilities	1,761.9	1,973.0
Income taxes payable	88.0	180.0
Total current liabilities	3,321.5	3,794.0
Long-term debt	441.1	363.8
Deferred income taxes and other liabilities	854.5	1,021.0
Total liabilities	4,617.1	5,178.8
Redeemable preferred stock	0.3	0.3
Common stock	2.8	2.8
Capital in excess of stated value	2,497.8	2,497.8
Accumulated other comprehensive income	251.4	251.4
Retained earnings	5,073.3	6,736.5
Stockholders' equity	7,825.6	9,488.8
Total liabilities and equity	$ 12,442.7	$ 14,667.6

* Gross property, plant and equipment and accumulated depreciation are inserted in the balance sheet; both are taken from footnotes to the financial statements.

Prepare the net cash flows from operating activities section of a forecasted statement of cash flows for 2013 using the indirect method. Treat current and noncurrent deferred tax assets and liabilities as operating. Operating expenses (such as Cost of sales and Selling and administrative expense) for 2013 include estimated depreciation expense of $359 million and amortization expense of $39 million. Estimated 2013 retained earnings includes dividends of $467 million.

• Enter answers using one decimal place as shown in the above financial statements.

• Use negative signs with answers to show a decrease in cash.

Nike, Inc. STATEMENT OF CASH FLOWS ($ MILLIONS) Forecasted FOR YEAR ENDED May 31, 2013
Net income	Answer
Add (Deduct) Items to Convert Net Income to Cash Basis
Depreciation	Answer
Amortization	Answer
Accounts receivable	Answer
Inventories	Answer
Deferred Income taxes	Answer
Prepaid expenses and other current assets	Answer
Deferred income taxes and other assets	Answer
Accounts payable	Answer
Accrued liabilities	Answer
Income taxes payable	Answer
Deferred income taxes and other liabilities	Answer
Net cash flow from operating activities	Answer

Answer 1

Nike, Inc. STATEMENT OF CASH FLOWS ($ MILLIONS) Forecasted FOR YEAR ENDED May 31, 2013
Net income	2160.2
Add (Deduct) Items to Convert Net Income to Cash Basis
Depreciation	359
Amortization	39
Accounts receivable [2795.3-3188]	-392.7
Inventories [2770-2438.4]	-331.6
Deferred Income taxes [227.2-259]	-31.8
Prepaid expenses and other current assets [613.3-680]	-66.7
Deferred income taxes and other assets [520.4-594]	-73.6
Accounts payable [1470-1287.6]	182.4
Accrued liabilities [1973 -1761.9]	211.1
Income taxes payable [180-88]	92
Deferred income taxes and other liabilities [1021-854.5]	166.5
Net cash flow from operating activities	2313.8

Increase in current asset is subtracted (cash is blocked in asset /cash outflow) and decrease in current asset (Cash inflow) is added while making adjustment for working capital

Increase in current liability is added (no cash outflow ) and decrease in current liability is subtracted (cash outflow) while making adjustment for working capital