Nike vs. Under Armour

Topics: Balance sheet, Generally Accepted Accounting Principles, Accounts receivable Pages: 8 (2958 words) Published: April 20, 2011
What industry are the companies in?

Nike; one of the most well known companies across the globe today is most known for being the world’s #1 shoemaker. They design and sell shoes for a variety of sports including baseball, golf, tennis and football. Nike also sells dress and casual shoes as well as athletic apparel and equipment for almost every sport imaginable. In addition Nike also operates NIKETOWN shoe and sportswear stores, factory outlets along with Nike women shops. One of Nike’s biggest competitors on the rise is Under Armour, Inc. Under Armour; the primary maker of performance athletic underwear and apparel has risen to the top with main competitor Nike. The company has also begun to become a factor in the footwear market as well. Recently, they have also become the official supplier of both the MLB and NHL. Under Armour’s specialty is sports specific garments, and completely dresses its customers from head to toe with both hot and cold gear for sports like football, baseball and hockey. Under Armour sells its products via the internet, catalogs, and in 17,000 sporting stores worldwide.

What is the primary source of revenue for each company?
Nike who took in a little over $18 billion in revenue in the year 2008 gets nearly 60% of its revenue from footwear. Just in footwear sales alone they took in nearly $10 billion. Followed by footwear sales were apparel sales in which another $5 billion was made. Nike also made another $1 billion in equipment sales and the rest of the revenue came from other products. Nike’s sales are primarily broken up into four divisional regions that include a U.S region, EMEA region, Asia Pacific region and an Americas region. By splitting up their revenues into four distinct regions they can measure what and where they make their best profits. Under Armour which is considered to be the next big company had a fairly good year but nothing compared to Nike. Under Armour took in over $800 million in revenue which is just 5 % of what Nike put in. But fortunately for Under Armour they continue to grow and expand their products and a younger generation is beginning to recognize them and choose them over older companies. For Under Armour their main source of income came from apparel as that is what they are most known for followed by equipment and finally footwear.

What are the company’s major expenses?
As always in order for big companies to take in big revenue they must also have expenses. The primary expenses for both companies of course are advertising expenses. Nike alone spent $2.5 billion on advertising. Under Armour also spends nearly 15% of its revenues on advertising expenses. Besides expenses that both companies pay to advertise their products they also each spend money on research and development to help expand on and better their products along with the usual interest expense, and other unusual expenses that all large companies must pay.

Review the basic financial statement:
-Do the companies use a single-step or multi-step income statement format? Both Nike and Under Armour use the single-step income statement format. This format lists all the revenues together under the heading “Revenues” and all the expenses under the heading “Expenses.” Nike’s income statement is more consolidated and organized than Under Armour’s but Under Armour’s gives more information in the revenues and expenses categories.

-Are there any “special” items reported in their income statement? Neither company listed any extraordinary items on their income statements during the year 2008.
-Is the balance sheet a classified or unclassified one?
A classified balance sheet seperates current assets and current liabilities from long-term liabilities. Both Nike and Under Armour’s balance sheets are classified. -Do they use the direct or indirect method on their statement of cash flows? Explain in detail the activity for the first year. Both Nike and Under Armour report their...
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