Professional Documents
Culture Documents
Roadmap to Developing Your Own Financial Statement Analysis and Valuation Product
Introduction
This roadmap leads you through the steps to create a valuation tool. With this tool you will be a
in a spreadsheet program, analyze the financial statements using the techniques in the book, fo
and value firms from those pro forma financial statements. In the end you will have a valuable
professional life and to use for your own personal investing.
Use the tool for:
Reformulating financial statements (as in Chapters 8-11)
Analyzing financial statements (as in Chapters 12-13)
Forecasting and valuation (as in Chapters 14-16)
Reverse Engineering (Chapter 7, 19)
You will find that building your own analysis product is very satisfying. It will help you grasp the
concepts come to life as you make them work for you in practice. And you will discover the poin
Off-the-shelf spreadsheet programs that you can use at the press of a button are available but
not sure about what is going on inside the program. Better to develop your own model, followin
of the integrity of the product.
Once you have followed the roadmap here, think of adding your own bells and whistles. You ca
industries. You can add a quality of earnings analysis (as in Chapter 17). You can utilize sprea
and risk analysis (as in Chapter 18). And you can add a credit analysis (as in Chapter 19).
Please note that the numbers presented in this spreadshhet might not be exactly same as thos
rounding difference.
It will help you grasp the concepts behind the analysis, for the
bells and whistles. You can customize the tool for particular
for the year and one or two years before, you will need to go back to another annual reports of the company to get financial statements fo
a longer period. Individual spreadsheet files can then be merged into the format you like.
Bring additional information into the statements from footnotes and elsewhere. The financial statements aggregate a lot of
information (particularly the income statements). Break down the aggregation to give more detail.
Allocate taxes in the income statement to operating and financing activities
Distinguish different components of income such as core operating income from sales, other core operating income, and unusual
items
Before beginning, make sure you understand the reformulation template in Chapter 8 of the book. Chapters 8-11 cover the rules and
principles for reformulation.
Spreadsheet programs like Excel allows you to use either the simple copy-and-paste method or the formula method to manipulate the
financial statements when doing the reformulation.
In the next section, the reformulated statements of shareholders' equity, balance sheets, income statements, and cash flow statements fo
Nike Inc. for 2000-2010 are given next to the original statements. Note the following points on the reformulation:
(a) Unearned stock compensation that arose from issuing shares to employees in fiscal year 2004 is an operating asset, so is moved from
the statement of shareholders' equity to the balance sheet. This is like prepaid wages and is amortized to the income statement over a
service period.
(b) Cash and cash equivalents in the balance sheets are split between a portion for operating needs and investment of excess cash in
financial assets
(c) Some additional expense items have been added to the income statements from the footnotes.
(d) Core and unusual operating items have been distinguished in the income statements.
(e) The tax allocation in the income statements involves not only allocating taxes between operating and financing activities but also
between core operating income and the restructuring charges. Note that foreign currency translation gains and losses are already after
tax.
1) Restate beginning and ending balances for items incorrectly included in or excluded from common equity
-Preferred stock (take out from SE and include in "financial liabilities" in B/S).
+Dividends payable (take out from "accrued liabilities" in B/S and include in SE)
- Noncontrolling interest
2) Regroup accounts under NOA (OA, OL) and NFA (FA, FL)
3) Refer to comments in the NIKE example to make adjustments for specific accounts
3. Income Statement
1) Reclassify GAAP income and expense items into core operating, non-core operating, and financial activities
2) Read footnotes carefully for income and expense items to find any non-core activities incorrectly classified under core activities
3) Account for tax effects in reclassifying incomes and expense items to make them after-tax basis
4) Bring "other comprehensive income" from the Statement of Shareholders' Equity. Most of them go under non-core operating
activities. No need to account for tax for these since they are after-tax basis
4. Statement of Cash Flows
No need to make major adjustments. Derive Free Cash Flow under two different methods.
5. Reformulation Checks
Link accounts from four statements to ensure that numbers are reconciled according to the equations in Chapter 7.
Chapter 8.
Notes:
Pre-2006, for Shareholder's Equity, we need to adjust for equity from stock compensation ("unearned stock compensation"), which
is take out from SE and include in prepaid expenses.
mmon equity
ancial activities
asis
ations in Chapter 7.
COMMON
CLASS A
in millions
BALANCE AT MAY 31, 1999
Stock options exercised
Conversion to Class B Common Stock
Repurchase of Class B Common
Dividends on Common Stock
Issuance of shares to employees
Amortization of unearned compensation
Comprehensive Income:
Net income
Foreign currency translation
Comprehensive Income
BALANCE AT MAY 31, 2000
Stock options exercised
Conversion to Class B Common Stock
Repurchase of Class B Common
Dividends on Common Stock
Issuance of shares to employees
Amortization of unearned compensation
Forfeiture of shares from employees
Comprehensive Income:
Net income
Foreign currency translation
Comprehensive Income
BALANCE AT MAY 31, 2001
Stock options exercised
Conversion to Class B Common Stock
Repurchase of Class B Common
Dividends on Common Stock
Issuance of shares to employees
Amortization of unearned compensation
Forfeiture of shares from employees
Comprehensive Income:
Net income
Foreign currency translation
Cumulative effect of change in accounting principle
Adjustment for fair value of hedge derivatives
Comprehensive Income
BALANCE AT MAY 31, 2002
SHARES
100.7
AMOUNT
0.2
(1.5)
STOCK
CLASS B
SHARES
181.6
1.3
1.5
(14.5)
CAPITAL IN
ACCUMULATED OTHER
EXCESS OF UNEARNED STOCK
COMPREHENSIVE
AMOUNT STATED VALUE
COMPENSATION
INCOME
2.7
334.1
38.7
(0.1)
(17.3)
0.5
99.2
0.2
(0.1)
170.4
2.9
0.1
(4.0)
13.5
2.6
369.0
91.0
(68.9)
(11.7)
(42.2)
(42.2)
(111.1)
6.7
(2.5)
3,334.6
38.7
(627.1)
(131.5)
(644.5)
(131.5)
1.8
579.1
579.1
(42.2)
536.9
3,136.0
91.0
(157.0)
(129.6)
###
(1.9)
579.1
2,887.0
(152.2)
(129.6)
(6.7)
7.3
1.2
(0.6)
589.7
99.1
0.2
(1.0)
169.5
1.7
1.0
(4.3)
2.6
459.4
72.9
(9.9)
(41.0)
(41.0)
(152.1)
(5.2)
0.2
13.2
(0.1)
(1.6)
589.7
3,194.3
(232.5)
(128.6)
(1.9)
6.5
0.2
(1.5)
663.3
98.1
0.2
168.0
2.6
538.7
(5.1)
(1.5)
56.8
(95.6)
(40.3)
(192.4)
TOTAL
3,066.5
(13.5)
1.8
(4.8)
0.1
RETAINED
EARNINGS
663.3
3,495.0
589.7
(41.0)
548.7
3,494.5
72.9
(237.7)
(128.6)
11.3
###
(2.9)
663.3
(1.5)
56.8
(95.6)
623.0
3,839.0
(0.3)
1.3
0.3
(4.0)
48.2
0.3
9.6
(0.1)
(2.7)
48.2
(4.8)
(186.2)
(142.7)
(0.2)
3.7
1.0
(0.9)
474.0
97.8
0.2
(20.2)
(0.1)
165.8
5.5
20.2
(6.4)
2.6
589.0
284.9
(0.6)
127.4
(174.7)
(47.3)
(239.7)
474.0
3,639.2
(7.6)
23.2
(406.7)
(194.9)
(7.5)
2.6
(1.7)
(0.3)
945.6
0.1
185.5
4.4
474.0
127.4
(174.7)
426.7
3,990.7
284.9
0.1
0.4
77.6
(191.0)
(142.7)
9.4
###
(2.6)
2.7
887.8
273.2
(5.5)
27.5
125.9
153.4
(86.3)
945.6
3,982.9
(414.3)
(194.9)
15.7
###
(2.0)
945.6
27.5
125.9
1,099.0
4,781.7
273.2
3,334.6
63.7
13.5
(644.5)
(131.5)
(698.8)
579.1
(42.2)
(39.9)
14.9
(25.0)
511.9
3,147.7
145.2
3.6
(157.0)
(129.6)
(137.8)
589.7
(41.0)
(86.6)
32.4
(54.2)
494.5
3,504.4
96.4
10.1
(237.7)
(128.6)
(259.8)
663.3
(1.5)
(95.6)
56.8
(37.4)
13.9
(23.5)
599.5
3,844.1
OA & FA
FA
OA
OA
OA
OA
OA
OA
OA
OA
OA
FL
FL
OL
OL
OL
FL
OL
FL
2010/05/31
2009/05/31
2008/05/31
2007/05/31
2005/05/31
$3,079.1
2,066.8
2,649.8
2,040.8
248.8
$2,291.1
1,164.0
2,883.9
2,357.0
272.4
$2,133.9
642.2
2,795.3
2,438.4
227.2
$1,856.7
990.3
2,494.7
2,121.9
219.7
$954.2
1,348.8
2,395.9
2,076.7
203.3
$1,388.1
436.6
2,262.1
1,811.1
110.2
873.9
10,959.2
1,931.9
187.6
467.0
873.6
14,419.3
765.6
9,734.0
1,957.7
193.5
467.4
897.0
13,249.6
602.3
8,839.3
1,891.1
448.8
743.1
520.4
12,442.7
393.2
8,076.5
1,678.3
130.8
409.9
392.8
10,688.3
380.1
7,359.0
1,657.7
130.8
405.5
316.6
9,869.6
7.4
138.6
1,254.5
1,904.4
59.3
3,364.2
445.8
855.3
0.3
32.0
342.9
1,031.9
1,783.9
86.3
3,277.0
437.2
842.0
0.3
6.3
177.7
1,287.6
1,761.9
88.0
3,321.5
441.1
854.5
0.3
30.5
100.8
1,040.3
1,303.4
109.0
2,584.0
409.9
668.7
0.3
0.1
2.7
3,440.6
0.1
2.7
2,871.4
0.1
2.7
2,497.8
0.1
2.7
1,960.0
214.8
6,095.5
9,753.7
14,419.3
367.5
5,451.4
8,693.1
13,249.6
251.4
5,073.3
7,825.3
12,442.7
177.4
4,885.2
7,025.4
10,688.3
OA
CSE
2006/05/31
2004/05/31
2003/05/31
2002/05/31
2001/05/31
2000/05/31
343.0
6,351.1
1,605.8
135.4
406.1
295.2
8,793.6
$828.0
400.8
2,120.2
1,650.2
165.0
364.4
5,528.6
1,611.8
135.4
366.3
266.6
7,908.7
$634.0
2,083.9
1,514.9
221.8
332.5
4,787.1
1,620.8
65.6
118.2
229.4
6,821.1
$575.5
1,804.1
1,373.8
140.8
260.5
4,154.7
1,614.5
232.7
206.0
232.1
6,440.0
$304.0
1,621.4
1,424.1
113.3
162.5
3,625.3
1,618.8
178.7
218.6
178.2
5,819.6
$254.3
1,567.2
1,446.0
111.5
2.2
215.2
3,596.4
1,583.4
195.7
215.2
266.2
5,856.9
255.3
43.4
952.2
1,286.9
85.5
2,623.3
410.7
550.1
0.3
6.2
69.8
843.9
984.3
95.0
1,999.2
687.3
462.6
0.3
6.6
146.0
780.4
979.3
118.2
2,030.5
682.4
413.8
0.3
205.7
75.4
572.7
1,036.2
130.6
2,020.6
551.6
257.9
0.3
55.3
425.2
504.4
765.3
83.0
1,833.2
625.9
141.6
0.3
5.4
855.3
432.0
472.1
21.9
1,786.7
435.9
102.2
0.3
50.1
924.2
543.8
621.9
2,140.0
470.3
110.3
0.3
0.1
2.7
1,451.4
(4.1)
121.7
4,713.4
6,285.2
9,869.6
0.1
2.7
1,182.9
(11.4)
73.4
4,396.5
5,644.2
8,793.6
0.1
2.7
887.8
(5.5)
(86.3)
3,982.9
4,781.7
7,908.7
0.2
2.6
589.0
(0.6)
(239.7)
3,639.2
3,990.7
6,821.1
0.2
2.6
538.7
(5.1)
(192.4)
3,495.0
3,839.0
6,440.0
0.2
2.6
459.4
(9.9)
(152.1)
3,194.3
3,494.5
5,819.6
0.2
2.6
369.0
(11.7)
(111.1)
2,887.0
3,136.0
5,856.9
2009/05/31
2008/05/31
2007/05/31
2006/05/31
2005/05/31
2004/05/31
$95.1
2,649.8
2,040.8
873.9
1,931.9
187.6
467.0
1,122.4
9,368.5
$95.9
2,883.9
2,357.0
765.6
1,957.7
193.5
467.4
1,169.4
9,890.4
$93.1
2,795.3
2,438.4
602.3
1,891.1
448.8
743.1
747.6
9,759.7
$81.6
2,494.7
2,121.9
393.2
1,678.3
130.8
409.9
612.5
7,922.9
$74.8
2,395.9
2,076.7
384.2
1,657.7
130.8
405.5
519.9
7,645.5
$68.7
2,262.1
1,811.1
354.4
1,605.8
135.4
406.1
405.4
7,049.0
$61.3
2,120.2
1,650.2
369.9
1,611.8
135.4
366.3
431.6
6,746.7
1,166.3
1,773.7
59.3
855.3
3,854.6
5,513.9
953.4
1,662.5
86.3
842.0
3,544.2
6,346.2
1,221.7
1,649.0
88.0
854.5
3,813.2
5,946.5
995.7
1,210.5
109.0
668.7
2,983.9
4,939.0
882.5
1,207.5
85.5
550.1
2,725.6
4,919.9
790.8
919.0
95.0
462.6
2,267.4
4,781.6
736.5
926.7
118.2
413.8
2,195.2
4,551.5
2,984.0
2,066.8
5,050.8
2,195.2
1,164.0
3,359.2
2,040.8
642.2
2,683.0
1,775.1
990.3
2,765.4
879.4
1,348.8
2,228.2
1,319.4
436.6
1,756.0
766.7
400.8
1,167.5
7.4
138.6
88.2
445.8
0.3
680.3
4,370.5
32.0
342.9
78.5
437.2
0.3
890.9
2,468.3
6.3
177.7
65.9
441.1
0.3
691.3
1,991.7
30.5
100.8
44.6
409.9
0.3
586.1
2,179.3
255.3
43.4
69.7
410.7
0.3
779.4
1,448.8
6.2
69.8
53.1
687.3
0.3
816.7
939.3
6.6
146.0
43.9
682.4
0.3
879.2
288.3
9,884.4
8,814.5
7,938.2
7,118.3
6,368.7
5,720.9
4,839.8
2010/05/29
$19,014.0
10,213.6
8,800.4
2009/05/30
$19,176.1
10,571.7
8,604.4
2008/05/31
$18,627.0
10,239.6
8,387.4
2007/05/31
$16,325.9
9,165.4
7,160.5
2006/05/31
$14,954.9
8,367.9
6,587.0
2005/05/31
$13,739.7
7,624.3
6,115.4
2004/05/31
$12,253.1
7,001.4
5,251.7
2003/05/31
$10,697.0
6,313.6
4,383.4
2002/05/31
$9,893.0
6,004.7
3,888.3
3,956.5
2,356.4
13.5
(49.2)
6,277.2
2,523.2
3,786.4
2,351.3
11.9
(88.5)
6,061.1
2,543.3
3,636.2
2,308.3
9.2
68.5
6,022.2
2,365.2
3,106.4
1,912.4
9.9
(0.9)
5,027.8
2,132.7
2,727.8
1,740.2
9.8
4.4
4,482.2
2,104.8
2,611.7
1,600.7
9.3
29.1
4,250.8
1,864.6
2,312.1
1,377.9
12.0
74.7
3,776.7
1,475.0
1,967.2
1,166.8
3.6
79.9
3,217.5
1,165.9
1,789.9
1,027.9
2.6
3.0
2,823.4
1,064.9
610.2
-
469.8
215.9
619.5
(22.1)
708.4
-
749.6
-
648.2
-
504.4
-
382.9
-
349.0
-
2.3
(3.4)
(28.1)
(24.6)
(13.4)
1.7
9.3
16.1
17.7
612.5
1,910.7
682.2
1,861.1
569.4
1,795.8
683.8
1,448.9
736.2
1,368.6
649.9
1,214.7
513.7
961.3
399.0
766.9
366.7
698.2
84.6
(16.7)
(12.2)
51.0
106.7
1,555.6
87.1
(38.8)
70.1
89.6
27.5
125.9
(94.3)
(46.0)
1,322.6
(110.3)
49.4
1,264.1
(80.0)
73.4
1,034.7
127.4
(174.7)
(266.1)
(20.8)
(334.2)
432.7
(1.5)
(95.6)
51.8
(23.5)
(68.8)
629.4
60.6
(401.3)
(195.0)
215.9
(380.4)
(22.1)
38.5
(159.2)
6.5
(335.3)
451.4
56.3
(96.4)
1,814.4
126.4
(138.0)
1,723.1
165.6
(91.6)
(25.7)
30.9
117.8
1,913.6
(36.4)
30.1
(6.3)
2.3
(4.0)
(40.2)
49.7
9.5
(3.4)
6.1
(38.7)
115.8
77.1
(28.1)
49.0
(49.7)
116.9
67.2
(24.6)
42.6
(50.5)
87.3
36.8
(13.4)
23.4
(39.7)
34.9
(4.8)
1.7
(3.1)
(40.3)
15.3
(25.0)
9.3
(15.7)
(57.0)
14.1
(42.9)
16.1
(26.8)
(61.2)
13.6
(47.6)
17.7
(29.9)
1,810.3
1,729.2
1,962.6
1,598.2
1,346.0
1,261.0
1,019.0
405.9
599.5
2010/05/31
2009/05/31
2008/05/31
2007/05/31
2006/05/31
2005/05/31
2004/05/31
2003/05/31
2002/05/31
2001/05/31
2000/05/31
$1,906.7
$1,486.7
$1,883.4
$1,491.5
$1,392.0
$1,211.6
$945.6
$474.0
$663.3
$589.7
$579.1
323.7
159.0
335.0
170.6
401.3
303.6
141.0
269.7
147.7
282.0
11.8
257.2
###
255.2
266.1
239.3
5.0
223.5
197.4
188.0
8.3
71.8
-
(294.1)
48.3
-
(60.6)
(300.6)
17.9
-
34.1
0.5
-
(26.0)
(2.9)
54.2
21.3
30.5
63.1
19.0
58.3
47.2
50.4
23.2
12.5
###
15.2
48.1
13.9
79.8
16.7
32.4
36.8
35.6
14.9
284.6
181.7
32.2
(238.0)
(249.8)
(118.3)
(49.5)
(39.6)
(200.3)
(85.1)
(103.3)
(93.5)
(55.9)
97.1
(136.3)
(102.8)
55.4
(135.2)
(16.7)
(141.4)
311.8
(82.6)
(69.6)
14.1
(11.2)
(60.8)
(37.2)
71.4
(103.6)
60.9
16.9
78.0
61.2
298.0
3,164.2
(220.0)
1,736.1
330.9
1,936.3
85.1
1,878.7
279.4
1,667.9
112.4
1,570.7
255.6
1,518.5
30.1
917.4
175.4
1,081.5
(179.4)
656.5
178.4
699.6
(3,724.4)
2,787.6
(335.1)
10.1
(11.2)
(2,908.7)
2,390.0
(455.7)
32.0
(47.0)
(1,865.6)
2,246.0
(449.2)
1.9
(21.8)
(2,133.8)
2,516.2
(313.5)
28.3
(4.3)
-
(2,619.7)
1,709.8
(333.7)
1.6
(34.6)
(1,527.2)
1,491.9
(257.1)
7.2
(39.1)
11.1
(400.8)
5.5
191.3
(76.0)
(571.1)
(47.2)
(289.1)
(214.8)
11.6
(53.4)
(4.1)
(185.9)
14.8
(46.3)
1.8
-
###
(282.8)
15.6
(39.1)
3.5
###
(317.6)
12.7
(42.5)
5.1
-
(419.9)
25.3
(51.3)
5.9
-
(1,267.5)
(798.1)
246.0
(489.8)
92.9
(1,276.6)
(360.4)
(950.6)
(215.6)
(302.8)
(342.3)
(440.0)
(32.2)
(205.4)
(6.8)
177.1
(35.2)
63.7
41.8
(255.7)
52.6
(6.0)
(18.2)
(9.2)
(81.7)
153.8
(206.6)
(0.3)
90.4
(55.9)
(349.8)
329.9
(80.3)
(431.5)
(50.3)
(68.9)
(1.7)
505.1
364.5
186.6
343.3
322.9
225.3
226.8
253.6
44.2
59.5
56.0
23.9
58.5
(741.2)
(505.4)
(1,061.2)
(47.5)
788.0
2,291.1
3,079.1
25.1
(649.2)
(466.7)
(733.9)
(46.9)
157.2
2,133.9
2,291.1
63.0
(1,248.0)
(412.9)
(1,226.1)
56.8
277.2
1,856.7
2,133.9
55.8
(985.2)
(343.7)
(1,111.5)
42.4
902.5
954.2
1,856.7
(761.1)
(290.9)
(850.9)
25.7
(433.9)
1,388.1
954.2
(556.2)
(236.7)
(657.0)
6.8
560.1
828.0
1,388.1
(419.8)
(179.2)
(398.5)
24.6
194.0
634.0
828.0
(196.3)
(137.8)
(605.2)
(38.1)
58.5
575.5
$634.0
(226.9)
(128.9)
(478.2)
(29.0)
271.5
304.0
$575.5
(157.0)
(129.7)
(349.9)
85.4
49.7
254.3
$304.0
(646.3)
(133.1)
(252.1)
48.7
56.2
198.1
$254.3
$48.4
537.2
$46.7
765.2
$44.1
717.5
$60.0
601.1
$54.2
752.6
$33.9
585.3
$37.8
418.6
$38.9
330.2
$54.2
262.0
$68.5
173.1
$45.0
221.1
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$108.9
1,814.4
5,513.9
NOA, 2009
6,346.2
(832.3)
2,646.7
Method 2:
C - I = NFE + Change in NFA + d
NFE, 2010
NFA, 2010
NFA, 2009
Net dividend, 2010
Free cash flow
4.0
4,370.5
2,468.3
1,902.2
740.4
2,646.7
2010/5/31
2009/5/31
2008/5/31
2007/5/31
2006/5/31
2005/5/31
2004/5/31
2003/5/31
2002/5/31
2001/5/31
2000/5/31
Comprehensive income
Ref stmt of shareholders equity
Income statement
Difference
1,810.3
1,810.3
0.0
1,729.2
1,729.2
0.0
1,962.6
1,962.6
0.0
1,598.2
1,598.2
0.0
1,346.0
1,346.0
0.0
1,261.0
1,261.0
0.0
1,019.0
1,019.0
0.0
405.9
405.9
0.0
599.5
599.5
0.0
494.5
494.5
0.0
511.9
511.9
0.0
Comprehensive income
GAAP net income
Dirty-surplus items
Adjusted GAAP Net Income
Income Statement
Difference
1,906.7
(96.4)
1,810.3
1,810.3
0.0
1,486.7
242.5
1,729.2
1,729.2
0.0
1,883.4
79.2
1,962.6
1,962.6
0.0
1,491.5
106.7
1,598.2
1,598.2
0.0
1,392.0
(46.0)
1,346.0
1,346.0
0.0
1,211.6
49.4
1,261.0
1,261.0
0.0
945.6
73.4
1,019.0
1,019.0
0.0
474.0
(68.1)
405.9
405.9
0.0
663.3
(63.8)
599.5
599.5
0.0
589.7
(95.2)
494.5
494.5
0.0
579.1
(67.2)
511.9
511.9
0.0
Ending CSE
Ref stmt of shareholders equity
Balance sheet
Difference
9,884.4
9,884.4
0.0
8,814.5
8,814.5
0.0
7,938.2
7,938.2
0.0
7,118.3
7,118.3
0.0
6,368.7
6,368.7
0.0
5,720.9
5,720.9
0.0
4,839.8
4,839.8
0.0
4,028.2
4,028.2
0.0
3,844.1
3,844.1
0.0
3,504.4
3,504.4
0.0
3,147.7
3,147.7
0.0
ROCE
19.36%
RNOA
30.60%
RNOA+[FLEV*(RNOA-NBC)]
19.36%
RNOA = PM*ATO
30.60%
PM = OI / Sales
9.54%
2009
2008
2007
2006
2005
2004
2003
2002
5,930.0
3,419.4
9,349.5
6,146.4
2,230.0
8,376.4
5,442.8
2,085.5
7,528.3
4,929.5
1,814.0
6,743.5
4,850.7
1,194.1
6,044.8
4,666.5
613.8
5,280.4
4,440.9
(6.9)
4,434.0
4,395.7
(459.5)
3,936.2
4,518.1
(843.9)
3,674.3
19,014.0
1,910.7
(96.4)
1,814.4
1,810.3
(4.0)
19.36%
30.60%
-0.12%
9.54%
10.05%
3.21
-36.57%
30.71%
19,176.1
1,861.1
(138.0)
1,723.1
1,729.2
6.1
20.64%
28.03%
0.27%
8.99%
9.71%
3.12
-26.62%
27.76%
18,627.0
1,795.8
117.8
1,913.6
1,962.6
49.0
26.07%
35.16%
2.35%
10.27%
9.64%
3.42
-27.70%
32.81%
16,325.9
1,448.9
106.7
1,555.6
1,598.2
42.6
23.70%
31.56%
2.35%
9.53%
8.87%
3.31
-26.90%
29.21%
14,954.9
1,368.6
(46.0)
1,322.6
1,346.0
23.4
22.27%
27.27%
1.96%
8.84%
9.15%
3.08
-19.75%
25.31%
13,739.7
1,214.7
49.4
1,264.1
1,261.0
(3.1)
23.88%
27.09%
-0.50%
9.20%
8.84%
2.94
-11.62%
27.59%
12,253.1
961.3
73.4
1,034.7
1,019.0
(15.7)
22.98%
23.30%
228.72%
8.44%
7.85%
2.76
0.16%
-205.42%
10,697.0
766.9
(334.2)
432.7
405.9
(26.8)
10.31%
9.84%
5.83%
4.04%
7.17%
2.43
11.67%
4.01%
9,893.0
698.2
(68.8)
629.4
599.5
(29.9)
16.32%
13.93%
3.54%
6.36%
7.06%
2.19
22.97%
10.39%
2007
2008
2007
-0.85%
11.62%
2.95%
11.27%
14.09%
11.64%
4.69%
-11.90%
22.80%
1015.64
1017.17
1322.72
2006
8.84%
14.48%
12.13%
19.09%
2004
14.55%
12.65%
2003
8.13%
7.13%
2002
4.26%
10.47%
18.74%
6.74%
23.76%
151.06%
-32.30%
21.25%
1025.04
832.20
812.22
642.09
71.29
287.22
9.17%
11.56%
2005
Level 2:
Core OI / NOA +
UI / NOA
32.22%
-1.62%
Change in RNOA =
1.07%
2.56%
0.87%
check
30.60%
0.62%
2.56%
-0.79%
-3.06%
Change in CSE =
1069.9
Change in NOA +
-832.3
Change in NFA
1902.2
NOA =
5,930.0
Sales / ATO
5,930.0
Change in CSE =
973.1
(52.0)
-164.4
1189.4
Change in RNOA
+
Change in ROCE =
-1.28%
A systematic analysis of the change in investment (CSE)
Common size and trend analysis helps understand the business and how it changes over time. It is a useful step in financial statement analysis in preparation for full-information forecasting and valuation.
Nike Inc.
Common size analysis of income statements
for the year ended
Operating revenue
Cost of sales
Gross margin
Operating expenses
Administrative expenses
Advertising
Amortization of identifiable intangibles
Other expense, net
Total operating expenses
Core operating income (before tax)
Tax on operating income
Tax as reported
Tax on other operating income
Tax benefit from net interest expenses
Total tax on operating income
Core operating income (after tax)
Other operating income (expense) (before tax)
Gains on divestitures
Impairment
Restructuring charge, net
Tax on other operating income
Other operating income (expense) (after tax)
Currency translation gains (loss)
Net hedging gain (loss)
Adjustment for Accounting Changes
Effect of stock option exercise
Total other operating income (expense)
Operating income after tax
2010/05/29
100%
54%
46%
2009/05/30
100%
55%
45%
2008/05/31
100%
55%
45%
2007/05/31
100%
56%
44%
2006/05/31
100%
56%
44%
2005/05/31
100%
55%
45%
2004/05/31
100%
57%
43%
2003/05/31
100%
59%
41%
2002/05/31
100%
61%
39%
2001/05/31
100%
61%
39%
2000/05/31
100%
60%
40%
21%
12%
0.1%
-0.3%
33%
13%
20%
12%
0.1%
-0.5%
32%
13%
20%
12%
0.0%
0.4%
32%
13%
19%
12%
0.1%
0.0%
31%
13%
18%
12%
0.1%
0.0%
30%
14%
19%
12%
0.1%
0.2%
31%
14%
19%
11%
0.1%
0.6%
31%
12%
18%
11%
0.0%
0.7%
30%
11%
18%
10%
0.0%
0.0%
29%
11%
18%
11%
0.0%
0.4%
29%
10%
18%
11%
0.2%
0.3%
29%
11%
3.2%
0.0%
0.0%
3.2%
10%
2.4%
1.1%
0.0%
3.6%
10%
3.3%
-0.1%
-0.2%
3.1%
10%
4.3%
0.0%
-0.2%
4.2%
9%
5.0%
0.0%
-0.1%
4.9%
9%
4.7%
0.0%
0.0%
4.7%
9%
4.1%
0.0%
0.1%
4.2%
8%
3.6%
0.0%
0.2%
3.7%
7%
3.5%
0.0%
0.2%
3.7%
7%
3.5%
0.0%
0.2%
3.7%
7%
3.8%
0.0%
0.2%
4.0%
7%
0.3%
-0.8%
0.0%
0.0%
0.3%
-0.5%
9.5%
-2.1%
-1.0%
1.1%
-2.0%
-0.1%
0.2%
-1.7%
2.4%
0.0%
0.7%
1.3%
11.0%
0.9%
-0.5%
-0.1%
0.2%
0.4%
10.1%
0.0%
0.0%
0.0%
0.5%
-0.1%
-0.1%
0.3%
0.7%
9.5%
0.6%
-0.3%
0.0%
-0.6%
-0.3%
8.8%
0.5%
0.7%
0.0%
-0.8%
0.4%
9.2%
0.2%
1.0%
0.0%
-0.7%
0.6%
8.4%
1.2%
-1.6%
-2.5%
-0.2%
-3.1%
4.0%
0.0%
-1.0%
0.5%
-0.2%
-0.7%
6.4%
-0.4%
0.0%
0.0%
-0.6%
-1.0%
5.6%
-0.5%
0.0%
0.0%
-0.3%
-0.7%
6.0%
Nike Inc.
Trend analysis of income statements
for the year ended
Operating revenue
Cost of sales
Gross margin
Operating expenses
Administrative expenses
Advertising
Amortization of identifiable intangibles
Other expense, net
Total operating expenses
Core operating income (before tax)
Tax on operating income
Tax as reported
Tax on other operating income
Tax benefit from net interest expenses
Total tax on operating income
Core operating income (after tax)
Other operating income (expense) (before tax)
Gains on divestitures
Impairment
Restructuring charge, net
Tax on other operating income
Other operating income (expense) (after tax)
Currency translation gains (loss)
Net hedging gain (loss)
Adjustment for Accounting Changes
Effect of stock option exercise
Total other operating income (expense)
Operating income after tax
2010/05/29
211%
189%
245%
2009/05/30
213%
196%
240%
2008/05/31
207%
189%
234%
2007/05/31
181%
170%
199%
2006/05/31
166%
155%
183%
2005/05/31
153%
141%
170%
2004/05/31
136%
130%
146%
2003/05/31
119%
117%
122%
246%
241%
73%
-212%
239%
262%
235%
240%
64%
-381%
230%
264%
226%
236%
50%
295%
229%
246%
193%
196%
54%
-4%
191%
222%
169%
178%
53%
19%
170%
219%
162%
164%
50%
125%
162%
194%
144%
141%
65%
322%
144%
153%
122%
119%
19%
344%
122%
121%
172%
315%
192%
307%
160%
296%
192%
239%
207%
226%
183%
201%
144%
159%
112%
127%
147%
336%
210%
319%
-179%
354%
-163%
288%
70%
245%
-75%
234%
-112%
192%
509%
80%
NIKE Inc.
Common size analysis of balance sheets
2010/05/31
Net operating assets (NOA):
Operating assets
Cash and equivalents
Accounts receivable, less allowance for doubtful accounts
Inventories
Prepaid expenses and other current assets
Property, plant and equipment, net
Goodwill
Identifiable intangible assets
Deferred income taxes and other assets
Total operating assets
Operating liabilities
Accounts payable - non-interest bearing
Accrued liabilities
Income taxes payable
Deferred income taxes and other liabilities
Total operating liabilities
Net financial assets (obligations) (NFA/NFO):
Financial assets
Cash equivalent
Short-term investments
Total financial assets
Financial liabilities
Current portion of long-term debt
Notes payable
Accounts payable - interest bearing
Long-term debt
Redeemable Preferred Stock
Total financial liabilities
2009/05/31
2008/05/31
2007/05/31
2006/05/31
2005/05/31
2004/05/31
2003/05/31
2002/05/31
2001/05/31
2000/05/31
1%
28%
22%
9%
21%
2%
5%
12%
100%
1%
29%
24%
8%
20%
2%
5%
12%
100%
1%
29%
25%
6%
19%
5%
8%
8%
100%
1%
31%
27%
5%
21%
2%
5%
8%
100%
1%
31%
27%
5%
22%
2%
5%
7%
100%
1%
32%
26%
5%
23%
2%
6%
6%
100%
1%
31%
24%
5%
24%
2%
5%
6%
100%
1%
33%
24%
5%
26%
1%
2%
7%
100%
1%
30%
23%
4%
27%
4%
3%
6%
100%
1%
29%
26%
3%
29%
3%
4%
5%
100%
1%
28%
26%
4%
28%
3%
4%
7%
100%
30%
46%
2%
22%
100%
27%
47%
2%
24%
100%
32%
43%
2%
22%
100%
33%
41%
4%
22%
100%
32%
44%
3%
20%
100%
35%
41%
4%
20%
100%
34%
42%
5%
19%
100%
27%
52%
7%
13%
100%
32%
52%
6%
10%
100%
40%
47%
2%
10%
100%
40%
51%
0%
9%
100%
59%
41%
100%
65%
35%
100%
76%
24%
100%
64%
36%
100%
39%
61%
100%
75%
25%
100%
66%
34%
100%
100%
0%
100%
100%
0%
100%
100%
0%
100%
100%
0%
100%
1%
20%
13%
66%
0%
100%
4%
38%
9%
49%
0%
100%
1%
26%
10%
64%
0%
100%
5%
17%
8%
70%
0%
100%
33%
6%
9%
53%
0%
100%
1%
9%
7%
84%
0%
100%
1%
17%
5%
78%
0%
100%
23%
9%
6%
62%
0%
100%
5%
37%
3%
55%
0%
100%
0%
64%
2%
33%
0%
100%
3%
61%
4%
31%
0%
100%
55.8%
44.2%
100.0%
72.0%
28.0%
100.0%
74.9%
25.1%
100.0%
69.4%
30.6%
100.0%
77.3%
22.7%
100.0%
83.6%
16.4%
100.0%
94.0%
6.0%
100.0%
107.5%
-7.5%
100.0%
116.0%
-16.0%
100.0%
130.6%
-30.6%
100.0%
141.2%
-41.2%
100.0%
As percentage of CSE:
Net operating assets (NOA):
Net financial assets (obligations)
Nike Inc.
Trend analysis of balance sheets
2010/05/31
Net operating assets (NOA):
Operating assets
Cash and equivalents
Accounts receivable, less allowance for doubtful accounts
Inventories
Prepaid expenses and other current assets
Property, plant and equipment, net
Goodwill
Identifiable intangible assets
Deferred income taxes and other assets
Total operating assets
Operating liabilities
Accounts payable - non-interest bearing
Accrued liabilities
Income taxes payable
Deferred income taxes and other liabilities
Total operating liabilities
Net operating assets (NOA):
Net financial assets (obligations) (NFA/NFO):
Financial assets
Cash equivalent
Short-term investments
Total financial assets
Financial liabilities
Current portion of long-term debt
Notes payable
Accounts payable - interest bearing
Long-term debt
Redeemable Preferred Stock
Total financial liabilities
2009/05/31
2008/05/31
2007/05/31
2006/05/31
2005/05/31
2004/05/31
2003/05/31
211%
169%
141%
385%
122%
96%
217%
295%
166%
213%
184%
163%
337%
124%
99%
217%
308%
175%
207%
178%
169%
265%
119%
229%
345%
197%
172%
181%
159%
147%
173%
106%
67%
190%
161%
140%
166%
153%
144%
169%
105%
67%
188%
137%
135%
153%
144%
125%
156%
101%
69%
189%
107%
125%
136%
135%
114%
163%
102%
69%
170%
114%
119%
119%
133%
105%
147%
102%
34%
55%
119%
110%
241%
285%
197%
267%
252%
265%
206%
195%
182%
194%
163%
148%
152%
149%
108%
161%
775%
317%
124%
763%
291%
143%
775%
314%
134%
606%
245%
111%
499%
224%
111%
419%
186%
108%
375%
181%
102%
234%
157%
97%
1426%
1049%
975%
848%
420%
630%
366%
277%
2413%
1605%
1282%
1321%
1064%
839%
558%
277%
15%
15%
147%
95%
100%
45%
64%
37%
131%
93%
100%
59%
13%
19%
110%
94%
100%
46%
61%
11%
74%
87%
100%
39%
510%
5%
116%
87%
100%
52%
12%
8%
89%
146%
100%
54%
13%
16%
73%
145%
100%
58%
411%
8%
83%
117%
100%
59%
70%
450%
Cost of sales
400%
60%
50%
Percent of Revenue
350%
Gross margin
40%
Percent of300%
2000 Value
250%
30%
200%
20%
150%
10%
100%
50%
0%
2000/01/01
2002/01/01
2004/01/01
2006/01/01
2008/01/01
2010/01/01
0%
2000/01/01
-10%
2002/01/01
2004/01/01
2006/01/01
2008/01/01
2010/01/01
200.0%
300%
150.0%
200%
Percent of Total CSE
Percent of 2000 Values
100%
100.0%
0%
50.0%
2000/01/01
-100%
0.0%
2000/01/01
2002/01/01
2004/01/01
2006/01/01
2008/01/01
2010/01/01
-200%
-50.0%
-300%
-100.0%
-400%
2002/01/01
2004/01/01
2006/01/01
2008/01/01
2010/01/01
30.0%
4.0
3.5
25.0%
3.0
20.0%
2.5
RNOA
15.0%
2.0
PM
ATO
1.5
10.0%
1.0
5.0%
0.5
0.0%
2010
RNOA
PM
ATO
2009
2010
19.4%
9.5%
3.2
2008
2009
20.6%
9.0%
3.1
2007
2008
26.1%
10.3%
3.4
2006
2007
23.7%
9.5%
3.3
2005
2006
22.3%
8.8%
3.1
2004
2005
23.9%
9.2%
2.9
2004
23.0%
8.4%
2.8
2003
2003
10.3%
4.0%
2.4
2002
2002
16.3%
6.4%
2.2
2001
14.9%
5.6%
2.1
Earnings
Value of operations =
Value of operations =
1)*NOAt-1
Residual net financial expense: NFEt - (kD-
1)NFOt-1
Discount rates
Denoted as
kE
kD
Cost of operations
kF
Formula
rf + beta*(rm-rf)
NBC
kE*VE/VF + kD*VD/VF
3.6%
0.90
5.0%
8.1%
1.2% (Get borrowing rate from debt footnote (1.9%) and convert to after-tax basis (1.2%))
484.4
73.94
35,817
(4,371)
31,446
9.1%
Page 485
Forecasting earnings and its components by forecasting that earnings will be the same as in the current year, adjusted for changes in the balance
sheet earning at the required return.
No-Growth Forecast is assuming all future residual earnings are the same as in the current year.
9.1%
9,884.4
1,910.7
5,513.9
6,346.2
1,335.8
1,335.8
1,835.3
24,630.1
484.4
50.85
Value of operations
vNOA = vE + NFO
20,259.6
20,259.6
vNOA = OI2011/kF
20,259.6
OI1 = RNOA0*NOA0
Financing
NFE1 = NBC0*NFO0
Earnings
Earn1 = ROCE0*CSE0
9.06%
30.60%
4.6%
5,513.9
1,687.0
1,187.5
36,516.6
75.39
Value of operations
vNOA = vE + NFO
32,146.0
32,146.0
vNOA = NOA*(RNOA-g)/(kF-g)
32,146.0
Gross margin
SG&A expense ratio
Tax rate
Sales growth
Page 441
2010A
46.3%
33.0%
36.3%
-0.8%
2011E
45.0%
30.0%
35.0%
4.0%
2012E
45.0%
30.0%
35.0%
4.0%
2013E
45.0%
30.0%
35.0%
4.0%
2014E
45.0%
30.0%
35.0%
4.0%
2015E
45.0%
30.0%
35.0%
4.0%
2010A
6.87
8.65
9.78
-5.8%
2011E
6.8
8.6
9.7
-6%
2012E
6.8
8.6
9.7
-6%
2013E
6.8
8.6
9.7
-6%
2014E
6.8
8.6
9.7
-6%
2015E
6.8
8.6
9.7
-6%
Forecasts of turnover
2011E
2012E
2013E
2014E
2015E
Income statement
Sales
Cost of sales
Gross margin
Total operating expenses
Core operating income before tax
Taxes
Core operating income after tax
Other income (expense)
Operating income
19,014.0
10,213.6
8,800.4
6,277.2
2,523.2
612.5
1,910.7
(96.4)
1,814.4
19,774.6
10,876.0
8,898.6
5,932.4
2,966.2
1,038.2
1,928.0
20,565.5
11,311.0
9,254.5
6,169.7
3,084.8
1,079.7
2,005.1
21,388.2
11,763.5
9,624.7
6,416.4
3,208.2
1,122.9
2,085.3
22,243.7
12,234.0
10,009.7
6,673.1
3,336.6
1,167.8
2,168.8
23,133.4
12,723.4
10,410.0
6,940.0
3,470.0
1,214.5
2,255.5
1,928.0
2,005.1
2,085.3
2,168.8
2,255.5
Balance sheet
Account receivable
Inventory
Property, plant and equipment
Other NOA
Net operating assets (NOA)
2,649.8
2,040.8
1,931.9
(1,108.6)
5,513.9
2,908.0
2,299.4
2,038.6
(1,186.5)
6,059.5
3,024.3
2,391.3
2,120.2
(1,233.9)
6,301.9
3,145.3
2,487.0
2,205.0
(1,283.3)
6,554.0
3,271.1
2,586.5
2,293.2
(1,334.6)
6,816.1
3,402.0
2,689.9
2,384.9
(1,388.0)
7,088.8
Operating income
Change in NOA
Free cash flow
1,814.4
(832.3)
2,646.7
1,928.0
545.7
1,382.4
2,005.1
242.4
1,762.8
2,085.3
252.1
1,833.3
2,168.8
262.2
1,906.6
2,255.5
272.6
1,982.9
RNOA
ReOI
Growth in ReOI
30.6%
33.3%
32.4%
32.4%
32.4%
32.4%
32.4%
1,277.2
1,337.6
1,416.9
1,473.6
1,532.5
1,593.8
1,657.6
5.9%
4.0%
4.0%
4.7%
4.0%
9.06%
Cost of operations
Total PV of ReOI to 2010
Continuing value
PV of CV
NOA as of 2010
Value of operations
NFA (NFO)
Value of common equity
Number of shares outstanding
Value per share
4.0%
5,670.2
32,764.6
21,237.2
5,513.9
32,421.3
4,370.5
$
36,791.8
484.4
75.95
(Page 665)
Steps 1-4 set up a basic valuation tool. You can add additional features:
Sensitivity analysis (Chapters 15)
Business Strategy Analysis (Chapter 16)
Economics Value Analysis (Chapter 17) (Please see web page for this chapter with additional tools)
Quality of earnings analysis (Chapters 18)
Risk analysis (Chapters 19 and 20)