ACC 101 - DURTSCHI

Financial Statement Analysis

Under Armour and Nike

Brandon Ning

10/30/2012

1

Table of Contents

Summary of Findings - Page 2

Financial Ratio Chart - Page 3

Ratio Explanations - Page 4

Summary of Management Discussion and Analysis - Page 5

Common-Sized Balance Sheet - Page 6

Common-Sized Income Statement - Page 7 – 8

Summary of Common-Sized Financial Statements - Page 9

Financial Statements for Under Armour

Income Statement - Page 11

Statement of Changes in Owner’s Equity - Page 12

Balance Sheet - Page 13

Statement of Cash Flows - Page 14

Auditor’s Report - Page 15

First Page of Management Discussion and Analysis - Page 16

Financial Statements for Nike

Income Statement - Page 18

Statement of Changes in Owner’s Equity - Page 19 – 20

Balance Sheet - Page 21

Statement of Cash Flows - Page 22

Auditor’s Report - Page 23

First Page of Management Discussion and Analysis - Page 24

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Summary of Findings

It is evident that the overall financial stature of Nike is far superior to that of Under

Armour, prompting me to believe in Nike to be the better investment choice. The common-sized

income statement reveals Nike’s heightened ability to generate enormous amounts of revenue

($20,862 million) and ultimately in net income ($2,133 million) compared to that of its inferior

competitor, Under Armour (Revenue being $1,472,684 thousand and net income being $96,919

thousand). The difference in net income is a stunning $2,036,081,000. Though the expenses,

costs, and liabilities are bigger for Nike, it seems only natural for this to occur if its final net

income is higher in comparison to Under Armour’s.

The amount of common stock invested into each Corporation is also very telling of which

seems to be the better choice, in this case, Nike winning once again in numbers. With further

analysis of the financial ratios for the respective corporations, Nike has the upper-hand in Return

on Equity, Profit Margin, and Return on Assets, possibly due to better managing. Nike loses to

Under Armour in ratios dealing with debt, but as I have stated earlier, I believe this only to be

natural as Nike makes more money. It is probably important to note, though, that Under Armour

does indeed have a better Current Ratio, giving it an advantage in acquiring cash to pay off debt

over Nike.

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Financial Ratios

Ratio Under Armour Nike

Debt/Asset 0.307631553 0.343712495

Debt/Equity 0.444317696 0.523722442

Return on Equity 0.171023771 0.217686381

Profit Margin 0.065811131 0.102243313

Return on Assets 0.121559926 0.145018187

Working Capital (Under Armour in Thousands/ Nike in Millions) 506056 7339

Current Ratio 3.756191213 2.854219303

*Under Armour Values in red for ease of reading

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Ratio Explanations

Debt/Asset - For every dollar of assets owned by Under Armour, they have $0.31 of debt, while

Nike has $0.34 for each dollar of assets. Under Armour seems to have the advantage here.

Debt/Equity - For every dollar of equity for Under Armour they have $0.44 of debt, whereas

Nike has $0.52 of debt for each dollar of equity. Under Armour once again seems to have an

upper-hand here.

Return on Equity - For every dollar invested in equity Under Armour makes a profit of $0.17

(17%) while Nike makes $0.22 (22%) of profit. Though Nike ends up with higher debt, they

make money than Under Armour from equity.

Profit Margin - For every dollar of sales for Under Armour it made $0.06 of profit while Nike

made $0.10 of profit. Possible reasons of this difference may be due to Under Armour holding

profits down or Nike has lower expenses. Nike seems to make an overall higher profit than

Under Armour.

Return on Assets - For every dollar owned in assets by Under Armour it makes $0.12 while Nike

makes $0.15. Nike seems to make better use of their assets than Under Armour does.

Working Capital - Both companies have enough cash on hand to cover debt due in the next years.

Nike will naturally have to acquire a great amount of working capital to pay its larger debts in

comparison to Under Armour.

Current Ratio - For every dollar of debt due next year Under Armour has $3.76 assets easily

convertible to cash to pay that debt, while Nike has $2.85. Under Armour appears to have more

readily-convertible assets on hand than Nike does.

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Summary of Management Discussion and Analysis

Under Armour

Management recognizes its growing revenues and claims its effects are due to an increase

in interest for their products, which is a direct result of progressive consumer demand for a

healthier lifestyle. They further this idea by mention of their clothing line which is known

primarily for its ability to “provide better performance by wicking perspiration away from the

skin, helping to regulate body temperature and enhancing comfort.”

It is also noted that Under Armour receives a large amount of their income from

operations in the last two quarters of the year, especially during the fall season, when demand of

their COLDGEAR line is high. The end of the discussion highlights and recognizes a recently

issued accounting standard which they believe “will not have a material impact on our

consolidated financial statements.”

Nike

Nike proclaims its strategy as to “achieve long-term revenue growth by creating

innovative, ‘must have’ products, building deep personal consumer connections with our brands,

and delivering compelling retail presentation and experiences.” Revenues for fiscal 2011 have

increased 10% as compared to fiscal 2010. More specifically, its footwear and apparel revenue

increased 11% and 9%.

Several financial reports for several countries where they span influence are also

presented, North America generating the highest values, Europe coming in second, and China in

third. A separate section highlighting its concerns with foreign currency and exchange is

provided. Like Under Armour, recently adopted and issued accounting standards are mentioned

6

Common-Sized Income Statement

Account

Under Armour (in thousands) %Sales

Nike (in millions) %Sales

Revenue $1,472,684 1 $20,862 1

Total Revenue $1,472,684 1 $20,862 1

Costs and Expense Cost of Sales $759,848 0.515961 $11,354 0.544243

Gross Profit $712,836 0.484039 $9,508 0.455757

Op, Sales, Gen Admin Exp $550,069 0.373515 $6,693 0.320823

Income from Operations before Interest and Taxes $162,767 0.110524 $2,815 0.134934

Net Interest Expense $3,841 0.002608 $4 0.000192

Other Expense $2,064 0.001402 ($33) -0.00158

Earnings before Taxes $156,862 0.106514 $2,844 0.136324

Taxes $59,943 0.040703 $711 0.034081

Net Income $96,919 0.065811 $2,133 0.102243

*Under Armour Values in Red for Ease of Reading

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Common-Sized Balance Sheet

Account Under Armour (in thousands)

% Total Assets

Nike (in millions)

% Total Assets

Assets Cash and Equiv $175,384 0.190798621 $1,955 0.130350713

Receivables $134,043 0.145824132 $3,138 0.209227897

Inventory $324,409 0.35292153 $2,715 0.181024137

Other $55,827 0.060733673 $3,489 0.232631017

Total Current Assets $689,663 0.750277956 $11,297 0.753233765

LT Assets Land $159,135 0.173121485 $2,115 0.141018803

PPE(net) $159,135 0.173121485 $2,115 0.141018803

Other Assets Intangible Assets $5,535 0.006021475 $487 0.032470996

Deferred Income Taxes $15,885 0.017281144 $894 0.059607948

Other LT Assets $48,992.00 0.053297941 $0 0

Goodwill $205 0.013668489

Total Other Assets $70,412.00 0.076600559 $1,586 0.105747433

Total Assets $919,210.00 1 $14,998 1

Liabilities Payables $100,527 0.109362387 $1,773 0.118215762

Accrued Expenses $69,285 0.075374506 0 0

Accrued Liabilities 0 0 $1,985 0.13235098 Current Maturity of LT Debt $6,882 0.007486864 $200 0.013335111

Other Current Liabilities $6,913 0.007520588 0 0

Total Current Liabilities $183,607 0.199744346 $3,958 0.263901854

Long Term Liabilities Long Term Debt 70,842 0.077068352 $276 0.018402454

Other LT Liabilities $28,329 0.030818855 $921 0.061408188

Total Long Term Liabilities $99,171 0.107887207 $1,197 0.079810641

Total Liabilities $282,778 0.307631553 $5,155 0.343712495

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*Under Armour Values in Red for Ease of Reading

Stockholder's Equity

Common Stock 17 0.0000184 3 0.0002

Additional Paid-In Capital $268,223 0.291797304 3,944 0.26

Retained Earnings $366,164 0.398346406 $5,801 0.386784905

Other Income $2,028 0.002206242 $95 0.006334178

Total Stockholder's Equity $636,432 0.692368447 $9,843 0.656287505

Total Liabilities and SE $919,210 1 $14,998 1

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Summary of Common-Sized Financial Statements

As noted earlier in the Summary of Findings earlier in this analysis, Nike is

ultimately the more-profitable business. Nike generates more revenue, gross profit,

earnings before taxes, and net income as the common-sized income statement

reveals. Every form of expense is, without doubt, higher in Nike’s entries in

comparison to Under Armour’s but this feature can be overlooked (though ,of

course, not completely and blindly) due to Nike’s overall level of profitability.

Upon looking at the common-sized balance sheet, several notable

differences can be seen. Under Armour holds a good portion of its assets in cash

and equivalents, which is a rather good trait in the face of liquidity. Nike clearly

owns more land in cash amounts. It may be interesting to note that both businesses

have a large portion of its assets in inventory, which should be a prominent feature

of manufacturers of clothing and sportswear, among other products. Nike has the

overall higher amount of total assets.

Nike has a significant portion of its current liabilities as a percentage of its

assets, making Under Armour in a possibly better position in case of sudden

liquidation. Under Armour also has the lower percentage in assets of its total

liabilities, again making Under Armour in a better position to pay off debt or

liabilities.

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Under Armour Financial Statements

11

Income Statement

12

Statement of Changes in Owner’s Equity

13

Balance Sheet

14

Statement of Cash Flows

15

Auditor’s Report

16

First Page of Management Discussion and Analysis

17

Nike Financial Statements

18

Income Statement

19

Statement of Changes in Owner’s Equity

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Statement of Changes in Owner’s Equity (Continued)

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Balance Sheet

22

Statement of Cash Flows

23

Auditor’s Report

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First Page of Management and Discussion and Analysis