JWI 530: Financial Management Assignment-1- LaShea Barnes

LaShea Barnes - JWI 530: Financial Management Assignment-1

Note to CEO

This document is to provide a solid understanding of the current financial standing of our competitors Nike and Under Armour. The following document is constructed of the information found from both company’s recent annual report. At our organization, we are strong believers that knowing the financial data of our competitors will soon get us in the number one spot in the market.

Competitor Strategies

In analyzing the competition, it has been discovered that both attack the competition in similar and different ways.  In identifying Under Armours’ key strategy, we notice in the letter to stakeholders that Under Armour believes its success against the competition is from brand image and recognition. Under Armour also mentions how their gear line merchandising differs from their competition. In analyzing these factors, if Under Armour continues to use high tech technologies to develop fabrics the athletics users continue to recognize, they will remain a dominant seller in the market.

Nike mentions in their report success being driven from endorsements and having the best quality. In agreeance, Nike receives a great number of endorsements and sponsorships. You can find a great deal of athletes, schools, and sports leagues (NBA, NFL, etc.) supporting the Nike brand. This major support drives Nike’s business and generates a great amount of press and sometimes free advertise for Nike. Nike has been named several times as the best brand in athletic gear, which ideally is a threat to competitors.

Net Income Margins

Net income margin also known as the net profit margin is a profitability ratio that is calculated by dividing net income by revenue. Net income margin can measure how much out of every dollar of sales a company actually keeps in earnings (Investopedia).  Figure.1 we identify Under Armour’s net income margin for 2015. Figure.2 shows the net income margin for Nike.

In reviewing both companies, it is clear that Nike has a higher net income margin earning $.10 for each dollar of revenue earned, while Under Armour only earns $0.05. This does not mean Nike is doing better than Under Armour, which means a deeper look needs to be taken into the income statement.

The below figure shows SGA(selling, general, and administration expenses) to net sales for Under Armour and Nike

Figure.3 (Under Armour 2013-2015)

2013:   871,572/2,332,051=0.373       2014:1,158,251/3,084,370=0.379      

2015:   1,497,000 / 3963313=0.378

Under Armour is controlling overhead expenses.

Figure.4 (Nike 2013-2015)

2013:   7,796 / 225,313=0.308            2014:   8,766 / 27,799=0.315 

2015:   9,862 / 302,601=.322

Nike is advancing steadily and doing a great job of covering overall expenses. Also by calculating the cost of goods sold (COGS) to sales both Under Armour (.519) and Nike(.540) ratios show that both companies are controlling gross margin. However, Under Armour shows a steady ratio.

Inventory Management

In 2015, Under Armour had more inventories in terms of days of inventory (Figure.5). DSI (day’s sale of inventory) measures a company’s performance that gives investors an idea of how long it takes to turn inventory into sales (accounting tools). Figure.5 shows the respective 3-year trends for days of inventory.

In accounting, FIFO and LIFO are cost layering methods; these methods are used to determine the value of the cost of goods sold and ending inventory (accounting tools). “First in, first out” means the inventory added first is the inventory being sold first or removed. In contrast “last in, first out” (LIFO), is defined as goods or merchandise added last to the inventory should be removed or sold first. Both Under Armour and Nike use the FIFO accounting approach.

Cash Is King

Last year Under Armour generated $44,104 in thousands in net cash, while Nike provided $4,680 in millions to net cash. It is obvious that Nike excelled past Under Armour in terms of net cash, and each company spends their cash differently. Nike spends net cash purchasing short-term investments and repurchasing of common stock. Under Armour spends a great amount of cash on acquiring businesses and spending on proceeds from revolving credit facility. However, Nike still has way more purchasing power than Under Armour.

Liquidity

The current ratio is calculated by dividing total current assets by total current liabilities. In terms of the current ratio of the two company, both companies show a stable 3-year trend. However, Nike shows a steady decrease from 2013 to 2015 Figure.6. Under Armour has variance in their current ratio, but it is still stable. Neither company shows signs of bankruptcy because both company’s assets are more than their total liabilities

Figures Appendix

Figure.1

232,573/3,963,313=0.058

0.058*100=5.8%

Therefore, a 5.8% profit margin, means Under Armour has a net income of $0.05 for each dollar of total revenue.

Figure.2

3273/30,601=0.107

0.107*100=10.7%

Figure.3 (Under Armour 2013-2015)

2013:   871,572 / 2,332,051=0.373     2014:   1,158,251 / 3,084,370=0.379 

2015:   1,497,000 / 3963313=0.378

Under Armour is controlling overhead expenses.

Figure.4 (Nike 2013-2015)

2013:   7,796 / 225,313=0.308            2014:   8,766 / 27,799=0.315 

2015:   9,862 / 302,601=.322

Figure.5

(inventory/cost of sales) * 365

Under Armour

2013:   (156,900 / 1,195,381) *365=47.90     2014:   (84,658 / 1,572,164) *365=19.65      

2015:   (278,524 / 2,057,766) *365=49.40

Nike (inventories is in increase on cash flow)

2013:   (219 / 14,279) *365=5.59       2014:   (505 / 15,353) *365=12.01    

2015:   (621 / 16,534) *365=13.71

In terms of Days Sales of Inventory, Nike has the lower values but             that does not mean Nike is doing better.

Figure.6

Under Armour

2013:   (1,128,811 / 426,630) =2.65   2014:   (1,549,399 / 478,810) =3.24  

2015:   (1,498,763 / 478,810) =3.13

Nike (inventories is in increase on cash flow)

2013:   (13,630/ 3,962) =3.44             2014:(13,696 / 5,027) =2.72  

2015:(15,976 / 6,334) =2.52