Financial Reporting Problem, Part 2: Nike

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Financial Reporting Problem, Part 2: Nike

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Financial Reporting Problem, Part 2: Nike

When determining the overall financial strength of a company, businesses rely on their current assets to show value. Current assets are defined as assets that can or will be converted into cash quickly. The value of the asset’s will vary and may be used at any time as collateral for loans or other investment business development plans. Current assets will include, of course, cash and cash equivalents, which is the amount of money the company has in its bank accounts including savings bonds, certificates of deposit, and money market funds. Assets must always be calculated as net assets, that is, less any debt owed by the organization. This calculation of current assets can be applied to personal assets as well. Nike Inc. has listed there current assets in this order. Cash and equivalents; Short-term investments; Accounts receivable; Inventories; Property; plant and equipment; Less accumulated depreciation; Property; plant and equipment; Identifiable intangible assets; Goodwill Deferred income taxes and prepaid expenses and/or other current assets. [According to Bank of American http://ycharts.com/financials/BAC/balance_sheet/quarterly] The order is correct and tells investors just how much money is available to the business immediately along with how much should a company keep on the balance sheet. The Balance Sheet is classified into several categories, current assets, fixed assets, non-current assets, current liabilities, non-current liabilities and equities. Current assets consist of cash and cash equivalents, receivables and inventory along with prepaid expenses. Current assets are assets the company expects to use within the current year or current accounting cycle. Fixed assets are assets such as, land and buildings used in the operations of the business. Fixed assets usually have a useful life greater than one year. Other non-current assets are assets that will be held for a time longer than the current year or accounting cycle. The current liabilities consist of accounts payable, notes payable, short-term debt on accrued liabilities and other current liabilities. Current liabilities are debts the company is to pay within the current year or current accounting cycle. Non-current liabilities are debts the company is to pay in a time period greater than the current accounting cycle or current year. The equity section consists of common stock, additional paid in capital and retained earnings. Common stock is the shareholders’ investment in the company to add to the company’s working capital. The retained earnings are simply earning/profits held in the business for company use. Cash equivalents are defined as highly liquid and short-term investments that are both readily convertible to cash and are close to maturity that their value on the market will not be shifted by changes in interest rates. Nike is a company that uses the designation “Cash and cash equivalents” in their financial statement. This information is found in their balance sheet and is reported as the amount of cash available at a given point in time. As of May 31, 2011, Nike had cash equivalents of 2,021,000 (Nike, 2011). Their cash equivalents and short term investments consist primarily of deposits held at major banks, money market funds, Tier-1 commercial paper, corporate notes, U.S. Treasury obligations, U.S. government agency obligations and government sponsored enterprise obligations, and other investment grade fixed income securities. Securities can have varying time periods, As of May 31, 2011, the average time period of Nike’s entire cash equivalents and short term investment collection is less than 120 days. Nike has a strong financial position that gives them the ability to meet their financial obligations. (Kimmel, 2010). What are the company’s total current liabilities at the end of it’s most recent annual period? Previous annual...
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