Question

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12. Below is income statement data for Nike, Inc: Nike, Inc Consolidated Statements of Income $ in Millions 12 Months Ended May 31,2019 May 31, 2018 $39,117 21,643 $36,397 20,441 Revenues (net sales) Cost of sales Gross Profit Demand creation expense Operating overhead expense Total selling & Administrative expense Interest expense (income), net Other (income) expense, net $17,474 3753 8,949 $12,702 49 (78) 15,956 3,577 7,934 11,5111 54 66 Income before income taxes Income tax expense 4.801 772 4,325 2,392 Net Income $4,029 $1,933 Perform vertical analysis on Gross Profit for 2019 and 2018, respectively. Round answers to two decimals places. a) 44.67% and 43.84% b) 100% and 100% c) 10.30% and 5.31% d) 55.33% and 56.16% 13. Assume the following information for two different companies Company A Company B Current year Prior Year Current Year Current Ratio 3.7 3.0 Debt to Assets 60% 55% 46% Ratio Prior Year 2.9 47% Which of the following statements is true? a) Company B's liquidity weakened from the prior year to the current year. b) Company A is more solvent than Company B. c) Company A may actually be considered less liquid than Company B since the current ratio does not consider composition of current assets d) Company A improved their solvency from the prior year to the current year.

Answer 1

Under vertical analysis we divide each and every figure with net sales 41 12) 42 43 % % 44 2019 39117 21643 17474 Revenues Cost of Sales Gross Profit 2018 36397 20441 15956 45 46 44.67% 43.84% 47 48 Answer a) 44.67% and 43.84% 49 50 13) Answer C) company A may actually be considered less liquid than company B since the current ratio does not consider composition of current assets 51 52 53 54 55 56 57 Explanation; It is always not necessary that the company with higher current ratio is more liquid than with lower ratio because it is vry much necessary to consider composition of current assets. It may be possible that company A has higher current ratio because it may be possible that most of its current assets consists of inventory and inventory is not quickly convertible into cash and large portion of company's B current assets may consists of cash and accounts and Receivable and accounts receivable are highly liquid and can be converted into cash quickly.Therefore, it is very necessary to consider the composition of current assets. 58 59 60