Week 5 Discussion Responses

Responding to Person 1

Hello,

This is a great post. I find it informative regarding the reporting of investments and long-term receivables/liabilities by Nike and Under Armour Corporations. The breakdown that you provided makes it easier to understand. It is interesting to note that Nike applies the equity method to report investments, whereby they do not have control over but enjoy significant influence (SEC, 2024): Week 5 Discussion Responses.

The method is crucial for companies like Nike in assisting to report earnings proportionate to the interest of stakeholders. In addition, it would be great to get some insight regarding the financial impact of the investment types held by the company on its earnings. Essentially, this is so because Yasar (2021) notes that large corporations use equity investment to drive strategic partnerships and have a direct impact on earnings. The same applies to Under Amour analysis. More information into Under Armour’s development of the reported percentages would assist in understanding its approach to financial growth.

References

SEC. (2024). Nike Inc. 10-k forms. https://www.sec.gov/Archives/edgar/data/320187/000032018724000044/nke-20240531.htm

Yasar, B. (2021). The new investment landscape: Equity crowdfunding. Central Bank Review, 21(1), 1–16. https://doi.org/10.1016/j.cbrev.2021.01.001

Responding to Person 2

Hello,

Great work on your post. I agree with your observation that Bark Inc.’s lack of investments and long-term receivables is closely associated with the nature of its business operations. Since the company pays more attention to short-term liquidity, it supports the lack of the subject interest. According to Santos et al. (2023), companies in the e-commerce sector pay more attention to cash management compared to traditional business models.

Notably, this could be the reason behind Bark’s prioritization of short-term liquidity. To add on, diversifying investments instead of ignoring long-term investments would be valuable for Bark Inc. Notably, this is so because a balance of risk is crucial for the long-term sustainability of any business.

Studies have shown that all companies that avoid diversifying their investments in the short term eventually end up shifting from this strategy (Doh et al., 2021). Therefore, it is likely that Bark Inc. will eventually change.

References

Doh, J., Budhwar, P., & Wood, G. (2021). Long-term energy transitions and international business: Concepts, theory, methods, and a research agenda. Journal of International Business Studies, 52, 951–970. https://doi.org/10.1057/s41267-021-00405-6

Santos, V., Augusto, T., Vieira, J., Bacalhau, L., Sousa, B. M., & Pontes, D. (2023). E-Commerce: Issues, opportunities, challenges, and trends. In Promoting Organizational Performance through 5G and Agile Marketing (pp. 224–244). https://doi.org/10.4018/978-1-6684-5523-4.ch012

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Reply to the two persons

Person 1

Company: Nike & Under Armour

1. In Nike’s most recent 10k, they report items related to investments and long-term receivables/liabilities in their consolidated balance sheets and notes to financial statements. Investments have their own line and are listed under the ‘assets’ section. Long-term receivables are categorized under ‘accounts receivable’ while long-term liabilities are categorized under the ‘liabilities’ section. Detailed breakdowns for these investments and long-term receivables/liabilities are also stated in the notes to financial statements. For required reporting, Nike should report all investments based on their classification on their balance sheet.For long-term receivables, they should also be reported on the balance sheet if their maturity is longer than twelve months. Liabilities that go beyond one year should be reported as long-term liabilities and be reported on the balance sheet. For reporting under specific circumstances, an example of investments under the equity method must be reported and possibly mentioned in the notes to financial statements with further details.
2. What stands out to me in Nike’s reporting is that for investments, they tend to use the equity method for investments in which it has significant influence but does not fully control the entity. What stands out to me for long-term receivables is that Nike reports the aging of their receivables to see which ones should be classified as long-term versus short-term. The only question that I have regarding Nike’s reporting is if they report enough details regarding their equity method investments and how they affect or contribute to their overall financials? Is there a reason on why Nike uses the methods they use and is there a certain significance that leads to better financial results?
3. Both Nike and Under Armour report investments that appear to be accounted for under the equity method. Nike reports things such as their equity method investments (which are reported in the notes to financial statements) and accounting policies that are related to those investments. For Under Armour, they report things such as the nature of their equity method investments with the type of entities and the effects that these investments have on their financial results. Both companies also share details on the ownership percentages that are held on their certain entities which is important in determining the degree of control or power.
   

   Week 5 Discussion Responses

Person 2

Company Name: Bark, Inc.

1. Bark, Inc. does not report any investments in securities or long-term receivables. Neither the balance sheet or notes include a line item or disclose any of these categories. Bark, Inc. assets are mostly cash and cash equivalents and there are no references of investments and long-term receivables in the income statement, balance sheet, or notes.

Required reporting:

1. 1. Debt securities – Companies must disclose the aggregate fair value of the security and the change in the net unrealized holding gains or losses included in each income statement for each period.
   2. Available-for-Sale – Companies must disclose, at each balance sheet date, the aggregate fair value, gross unrealize holding gains and losses, the amortized cost categorized by major security types, and the total allowance for credit losses.

Each income statement period, companies must disclose:

• Proceeds from the sales and the gross realized gains and losses, including the method used to determine costs.
•  Gross gains and losses included in net income from transfers into the trading category.
•  The change in the net unrealized holding gain or loss, as a separate component of to the comprehensive income.

1. 1. Held-to-Maturity securities – Companies must disclose at each balance sheet date the aggregate fair value, gross unrealized holding gains and losses, the amortized cost by major security types, and the total allowance for credit losses

For any sales or transfers that occur from this category, disclosures must include the amortization cost, any related or unrealized gain or loss, and the circumstances leading to the sell or transfer.

Reporting Under Specific Circumstances

1. Long-Term receivables that can be categorized as investments on the balance sheet. A note receivable which is recorded at fair value of the property, goods, or services, or fair value of the note. Whatever one is reliably determinable. If neither can be determined, the note is recorded at present value.

1. What stood out to me is that I could not find any investments or long-term receivables in the company’s financial statements. One possible reason I thought of for Bark, Inc. is the way they generate revenue from direct-to-consumer sales, which to me means they rely on short-term receivables rather than long-term.Maybe they prefer liquidity and flexibility, which is why they do not hold long-term investments in securities? Another reason I might think is the company is focusing primarily on growth and may not be large enough to have resources for these. Cash management might be their focus instead of investments and long-term receivables.
2. Freshpet, Inc., my other company reports investments under the equity method. It said they use this method to account for investments when it possesses the ability to exercise significate influence over the operating and financial policies of the investee. Bark, Inc. does not.

BARK, INC (3/31/2024). Annual report (Form 10-K). U.S. Securities and Exchange Commission. Retrieved from https://www.sec.gov/Archives/edgar/data/1819574/000181957424000025/bark-20240331.htm

Wahlen, James, et al. Intermediate Accounting: Reporting and Analysis, 4^th ed., CENGAGEL,  2023.