Professional Documents
Culture Documents
Olivia Blankenship
Accounting
6/4/2016
Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab, and also include your commentary.
The 2014 financial statements used to calculate these ratios are available in the Investor Relations section of Nike Corporation and Under Armour.
Nike, Inc
Under Armour
The comparison of the ratios is an important part of the project. A good approach is to
briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better.
Then compare the two companies on this basis. Remembereach ratio below requires a
comparison.
Current Ratio
3.05
Under Armour has better strength to pay short term obligation as compared to Nike
Current assets
Current liabilities
$13,696
$5,027
2.72
$1,549,399
$421,627
3.67
Gross margin
Net sales
$12,446
$27,799
44.8%
$1,512,206
$3,084,370
49.0%
Net income
Net sales
$2,693
$27,799
9.7%
$208,042
$3,084,370
6.7%
Nike has better profitability, it s because the operating expenses of Nike are less
as copared to Under Armour
Inventory Turnover
$15,353
$3,947
3.9
times
$1,574,162
$536,714
365
Inventory turnover
365
3.9
94
days
365
2.9
$27,799
$3,434
8.1
365
Accounts receivable turnover
365
8.1
Net sales
Average total assets
$27,799
$18,594
Asset turnover
Debt Ratio
Times-Interest-Earned Ratio
Dividend Yield
(Please follow the Course Project instructions to calculate the current dividend yield.)
Rate of Return on Common Stockholders' Equity (ROE)
2.9
times
Nike has better ability to sale its inventory as compared to Under Armour
124
days
$3,084,370
$279,835
11.0
45.1
days
365
11.0
33.1
days
1.50
$3,084,370
$2,095,083
1.47
Nike is able to use its assets more optimally as compared to Under Armour
14.5%
9.9%
Under Armour is able to collect its receivables more quickly as compared to Nike
Under Armour is able to collect its receivables more quickly as compared to Nike
Under Armour has lower debt as compared to Nike, thus having better solvency
1
Total Assets
$7,770
$18,594
41.8%
$744,783
$2,095,083
35.5%
$3,003
$33
91.0
353,955
5,335
66.3
$0.93
$53.45
1.7%
$0.98
$38.38
2.6%
$2,693
$10,824
24.9%
$208,042
$1,350,300
15.4%
$53.45
$3.05
$2,123
18
$38.38
$0.53
72
You all get the chance to play the role of financial analyst below. The summary should be a
comparison of each company's performance for each major category of ratios listed below.
Focus on major differences as you compare each company's performance. A nice way to
conclude is to state which company you feel is the better investment and why.
Measuring Ability to Pay Current Liabilities: Under Armour has an advanatage over Nike given its current ratio.
The company has a current ratio of 3.67 compared to Under Armour's 2.72, though both imply enough liquidity
to meet obligations.
Measuring Turnover: Nike Corporation has an advanatage in Inventory turnover with Under Armour having an
advanatage in accounts receivable turnover ratio. Nike's inventory turnover is 3.9 times compared to 2.9 times of
Under Armour. Similalrly, Nike has a receivable turnover ratio of 8.1 compared to Under Armour's 11.1. This
implies that under Armour is more efficient its collection of accounts compared to Nike.
Measuring Leverage - Overall Ability to Pay Debts: Under Armour has significantly less debt than Nike Inc as
evidenced by Under Armour's 35.5% debt-to-asset ratio compared to Nike's 41.8% debt-to-asset ratio. Nike can
cover its interest expense 91 times with income before interest and taxes, while Under Armour can only cover its
interest expense 66.3 times with their income before interest and taxes. Nike has the advantage for each of
these ratios.
Measuring Profitability: Nike has the advantage for 4 of the 5 profitability ratios. Nike has a significant edge in
return on common stockholders' equity, with a 24.9% return on common stockholders' equity, as compared to
Under Armour's 15.4%. Under Armour has a higher gross profit rate (49.0% - 48.7%), while Nike has a higher net
profit margin ratio (9.7%6.7%). Nike also has a significant advantage for asset turnover (1.51.47) and rate of
return on total assets (14.5%9.9%).
Analyzing Stock as an Investment: Under Armour returns a 2.6% dividend yield to its investors, while Nike's
yield is 1.7%. Nike has positive free cash flow of $2,123 million while Under Armour has positive free cash flow
of $67,522 million. Free cash flow can be used to undertake acquisitions, pay additional dividends, pay down
debt, or buy back stock.
Conclusion: Nike is the safer investment when you examine their ability to pay current liabilities and overall
liabilities; however, Under Armour has the advantage for the gross profit ratio and the dividend yield. For the
conservative investor, Nike Corporation looks like the way to go because of their strong current and timesinterest-earned ratios. For the growth-oriented investor, Under Armour is the way to go because of their large
amount of free cash flow.
Your textbook and any information that you use to profile the companies should be cited as a reference below.
Under Armour. (2016). Under Armour, Inc. Retrieved on Jun. 4, 2016 from https://uk.finance.yahoo.com
Nike. (2014). Nike, Inc.: Form 10-K Annual Report. Retrieved on Jun. 4, 2016 from http://d1lge852tjjqow
Under Armour. (2014). Under Armour, Inc.: Form 10K Annual Report. Retrieved on Jun. 4, 2016 from ht
Yahoo Finance. (2016). Nike, Inc. Retrieved on Jun. 4, 2016 from https://uk.finance.yahoo.com/q?s=NK
udfront.net/CIK-0000320187/bc222fb9-2306-449c-8c11-4424d8979db6.pdf.
les.shareholder.com/downloads/UARM/2178425690x0xS1336917-14-8/1336917/filing.pdf.