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Nike, lululemon, and Under Armour: Days’ cash on hand Three companies that compete in the athletic and activewear market segment are Nike, Inc., lululemon athletica inc., and Under Armour, Inc. Nike is the largest designer and seller of athletic footwear and apparel in the world. Lululemon designs and sells technical athletic apparel featuring yoga, fitness, and dance-inspired wear. Under Armour designs and sells athletic apparel featuring high-performance fabrics for men and women around the world. Selected financial information for a recent year follows (in millions): Nike lululemon UnderArmour Balance sheet: Cash $ 2,220 $ 664 $ 593 Temporary investments 2,922 Income statement: Operating expenses 8,766 538 1,158 Depreciation expense 518 58 72 Total revenues 27,799 1,797 3,084 A. How does the size of these companies, as represented by total revenues, compare to each other? B. Compute the days’ cash on hand for all three companies. (Round all calculations to one decimal place.) C. Comment on the cash sufficiency for these three companies. D. Which company appears to have the greatest cash liquidity? E. Why is a ratio used to compare cash sufficiency across the three companies rather than just the companies’ cash balances?

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Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

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Section
BuyFindarrow_forward

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
Chapter 7, Problem 7.4ADM
Textbook Problem
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Nike, lululemon, and Under Armour: Days’ cash on hand

Three companies that compete in the athletic and activewear market segment are Nike, Inc., lululemon athletica inc., and Under Armour, Inc. Nike is the largest designer and seller of athletic footwear and apparel in the world. Lululemon designs and sells technical athletic apparel featuring yoga, fitness, and dance-inspired wear. Under Armour designs and sells athletic apparel featuring high-performance fabrics for men and women around the world. Selected financial information for a recent year follows (in millions):

  Nike lululemon UnderArmour
Balance sheet:      
Cash $ 2,220 $ 664 $ 593
Temporary investments 2,922    
Income statement:      
Operating expenses 8,766 538 1,158
Depreciation expense 518 58 72
Total revenues 27,799 1,797 3,084
  • A. How does the size of these companies, as represented by total revenues, compare

to each other?

  • B. Compute the days’ cash on hand for all three companies. (Round all calculations to one decimal place.)
  • C. Comment on the cash sufficiency for these three companies.
  • D. Which company appears to have the greatest cash liquidity?
  • E. Why is a ratio used to compare cash sufficiency across the three companies rather than just the companies’ cash balances?

(a)

To determine

Cash and cash equivalents: Cash is the money readily available in the form of currency. Cash equivalents are the near-cash items, which are readily convertible into cash.  Cash equivalents have a maturity period of three months, or less than 3 months. Cash and cash equivalents are reported in the Current assert section of the balance sheet.

Examples of cash equivalents

  • Certificates of deposit
  • U.S. government securities
  • Corporate notes and bonds
  • Commercial paper

The size of companies.

Explanation of Solution

N’s total revenue is $27.8 billion. This company is the largest company and is 15 t...

(b)

To determine

To compute: Days’ cash on hand for all three companies.

(c)

To determine

To comment: Cash sufficiency

(d)

To determine

The company with greatest liquidity

(e)

To determine

the reason for using ratios to compare the cash sufficiency

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Chapter 7 Solutions

Corporate Financial Accounting
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Ch. 7 - Internal control elements Identify each of the...Ch. 7 - Items on companys bank statement The following...Ch. 7 - Bank reconciliation The following data were...Ch. 7 - Petty cash fund Prepare journal entries for each...Ch. 7 - Sarbanes-Oxley internal control report Using...Ch. 7 - Internal Controls Faith Cassen has recently been...Ch. 7 - Internal Controls Ramonas Clothing is a retail...Ch. 7 - Internal Controls for bank lending Pacific Bank...Ch. 7 - Internal Controls One of the largest losses in...Ch. 7 - Internal controls An employee of JHT Holdings,...Ch. 7 - Internal controls All-Around Sound Co. discovered...Ch. 7 - Financial statement fraud A former chairman, CFO,...Ch. 7 - Internal control of cash receipts The procedures...Ch. 7 - Internal control of cash receipts Sergio Flores...Ch. 7 - Internal control of cash receipts The mailroom...Ch. 7 - Entry for cash sales; cash short The actual cash...Ch. 7 - Entry for cash sales; cash over The actual cash...Ch. 7 - Internal control of cash payments Abbe Co. is a...Ch. 7 - Internal control of cash payments Paragon Tech...Ch. 7 - Bank reconciliation Identify each of the following...Ch. 7 - Entries based on bank reconciliation Which of the...Ch. 7 - Bank reconciliation The following data were...Ch. 7 - Entries for bank reconciliation Using the data...Ch. 7 - Entries for note collected by bank Accompanying a...Ch. 7 - Bank reconciliation An accounting clerk for...Ch. 7 - Bank reconciliation The following bank...Ch. 7 - Using bank reconciliation to determine cash...Ch. 7 - Petty cash fund entries Journalize the entries to...Ch. 7 - Evaluating internal control of cash T he following...Ch. 7 - Transactions for petty cash, cash short and over...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries Beeler Furniture...Ch. 7 - Evaluating internal control of cash The following...Ch. 7 - Transactions for petty cash, cash short and over...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries The cash account...Ch. 7 - Bank reconciliation and entries Sunshine Interiors...Ch. 7 - Continuing Company AnalysisAmazon: Days cash on...Ch. 7 - Apache: Days cash on hand Apache Corporation is an...Ch. 7 - Krispy Kreme and Dunkin: Days cash on hand Krispy...Ch. 7 - Nike, lululemon, and Under Armour: Days cash on...Ch. 7 - Ethics in Action Tehra Dactyl is an accountant for...Ch. 7 - Communication Wholesome and Happy Foods is a...

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