You are the CFO of an up-and-coming athletic company, which desires to someday become the #1 athletic company in the world. Strategically, the company uses Nike and Under Armour as their key competitor benchmarks. Your CEO is a big believer in learning from the competition and is requesting two things from you regarding Nike and Under Armour’s most recent annual reports: An Executive Summary Presentation of your findings.
NOTE: In order to complete this assignment, you will need to obtain each company’s MOST RECENT annual report.
Submission Requirements:
Executive Summary
Create an executive summary you would feel comfortable turning in to your CEO that is no more than 2 pages, single-spaced using 12-point Times New Roman font. You may also include an appendix with additional references, graphs, charts, and tables for additional support if needed.
1. Competitor Strategies
• Identify and explain one key strategy from each company that the company explicitly discussed in the annual report.
2. Net Income Margins
- What are the after-tax net income margins (aka, net profit margin) for both companies?
- How do they compare?
- Who achieves the higher net income margin? Why? Tip: Analyze the major cost structure line item in the income statement (COGS, SG&A, interest, other, and taxes) as a percentage of net sales to identify reasons for better net income margins. Identify and comment on the differences. You may not know why a particular cost item like COGS is higher or lower, but your CEO only wants to know which cost structure items are higher or lower for each company.
Who has more inventory in terms of days of inventory last year? (Inventory Days on Hand ratio)
What are their respective 3-year trends for days of inventory?
What accounting approach does each of the companies use to value their inventory? (The accounting approach can be found in the Notes section)Instructions
4. Cash is King
How much net cash from operations did each company generate last year?
Which company has done a better job generating cash from operations?
In laymen’s terms, how is each company spending their cash with respect to reinvestments in the business, changes in debt, and returning money to shareholders?
5. Liquidity
How do the companies compare in terms of the current ratio, and what are their respective 3-year trends?
Does their current ratio indicate that either of these companies could go bankrupt soon? Explain.
Use each company’s MOST RECENT annual report as a reference.
Note: You will need to retrieve, use and cite the most recent annual reports for Nike and Under Armour, per the instructions. But nothing additional to what is noted in the instructions above.
Answer preview
For Nike Inc, the net profit margin for 2017 is 12.34% while for Under Armour is -0.97%. The negative net income margin is due to a loss in the income statement of $48260000. The net income margin for Under Armour on making adjustments to eliminate the non-recurring costs is 1.52% which is relatively low (Randolf Saint-Leger, (N.d.). For Nike, the Net profit is $4250 million, and the revenue is $34350 million. Under Armour revenue is $4976553000 which is lower than that of Nike. Under Armour 2018 the net loss is 48260000, and the revenue is $4,976,553000. Adjustment of the net profit with the least expenses ($3614) would maintain a net loss and as such the net profit margin is insignificant for Under Armour. As a negative value, the net profit margin is expressed through. The net profit margin for Nike is thus maintained at 12.34%, and that of Under Armor is -0.97 % (calculations in the Appendices).
To compare the two companies, several adjustments are made based on the cost structure. For 2017 unlike the other years Under Armour incurred a restructuring and impairment charge which is non-recurrent of $124, 049. Adjusting net profit from this expense would yield a net profit. However, even with the assumed income, the profit margin is lower than that of Nike Inc. There are no non-recurrent expenses, and hence Nike profit margin is maintained at 12.34% which is high.
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