Berkshire Hathawayâ€™s 13-F filling for the third quarter of 2010 reported that warren Buffett had reduced his stake in Nike, inc. by $224 million, bringing his holding to 7.62percent of the 480 million outstanding shares. Nike reported a core return on net operating assets (RNOA) of 32.7 percent in its annual report for the year ended may, 2010. A summary of its balance sheet at fiscal-year end follows:
Net operating assets $5,318 million
Net financial assets 4, 436
Common equity $9754 million
In mid-July, at the time that the annual report was published, Nikeâ€™s shares traded at $68 each. By the end of September, the price had risen to $81.
- Calculate the expected return from buying at the market price in mid-July with a forecast that Nike can grow residual operating income at 4 percent per year. Now make the same calculation for the September price. Do you see why Buffett may have sold?