Nike and Under Armour (Accounting Paper)

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RUNNING HEAD: NIKE & UNDER ARMOUR FINANCIALS

Nike & Under Armour Financial Analysis

Table of Contents

Background……………………….……………………………………………………………………..3

Progress in last year…………………………………………………………………………………..3-5

Profitability/Debt Ratios…………………………...………………………………………………...5-7

Net Profit Margin………………………..……………………………………………………….5

Gross Profit Margin………………………...…………………………………………………….6

Return on Equity………………………….…………………………………………………...6-7

Earnings per Share……………………..………………………………………………………...7

Liquidity/Debt Ratios………………………………………………………….…….……………….7-9

Current Ratio……………………………………………………………………………………8

Debt to Equity…………………………………………………………………………………..8

Interest Coverage……………………………………………………………………………….9

Efficiency Ratios……………………………………………………………………..………………9-11

Inventory Turnover…………………………………………..……………………….………9-10

Payable Turnover…………………………………………..……………………………..…….10

Receivable Turnover……………………………………..……………………………….…….11

Trends………………………………………………………..……………………………………...11-14

Cash Flow Trends.………....……………………………………………………...…………….…14-15

Financial Analysis…………………………………………………………….……………………15-17

References……………………………………………………………………….……………….…….18

Background

Nike was incorporated in 1968 and has become arguably synonymous with elite footwear/apparel amongst the world population (Nike 10K, 2009). Nike’s primary business “is the design and development and worldwide marketing of high quality footwear and apparel” (2009, pg.1). In addition, Nike also designs/markets sports equipment and accessory products. Nike puts a heavy emphasis on investing in the innovation and design of their products to give their customers a high-quality product. Nike is the largest seller of athletic footwear and apparel in the world (2009). Nike sets the bar for other companies in the sports apparel/footwear industry, like Under Armour. Under Armour, a rather infant company was incorporated only fourteen years ago in 1996 (Under Armour 10K, 2009). Under Armour, comparable to Nike, is in the business of, “developing, marketing and distribution of branded performance apparel, footwear and accessories” (2009, pg.1). Because of their infancy, unlike Nike, which is a global company, a majority of Under Armour's products are sold domestically (2009). The international growth opportunity for Under Armour is significant given the international success of their competitor, Nike.

Progress in the last year

Nike over the last year has been investing in new products that are innovative for the sports shoe/apparel industry. Nike has been implementing new technologies such as Flywire, Luna Foam and Hyperdunk basketball shoes (Nike, 2009). After the Bejing Olympics in China, Nike saw an increase in demand in their products grow amongst the 500 million Chinese under the age of 25 which shows a promising trend for future sales (2009). In an effort to leverage resources and to push operations to be leaner, Nike reduced their workforce of 34,300 by 5 percent (Nike 10K, 2009). As part of the restructuring Nike suffered pre-tax charges of $195 million “primarily consisting of severance costs” (2009, pg. 23). As the economic climate deteriorated, Nike has seen just a small increase of 3 percent increase in revenue year over year, falling short of their long-term goals of 8-9 percent annually (Nike 10K, 2009). The Umbro brand, which Nike acquired in 2008 performed slightly better than anticipated however, Umbro was affected by global consumer confidence and the collapse of the financial markets (2009). However, Nike sees Umbro as a viable long-term investment for their portfolio (2009). Although Nike had a 3 percent increase in revenue their net income fell behind year over year and as a result their earnings per share fell 19 percent year over year (Stevens, J, 2010). During 2009, foreign currency exchange rates dropped thus, negatively affecting Nike’s revenue by 1 percent (Nike 10K, 2009)....
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