JWI 530 Assignment 1 – Annual Report

22 Dec No Comments

Assignment 1: Annual Report

Jack Welch Management Institute

JWI 530: Financial Management I

Introduction

As the CFO of Salandy Inc. an up-and-coming athletic company, is to make sure that we are on the right path on becoming the number one in our market. In order to achieve this goal, I will provide an analysis of the financial standing our top two competitors Nike and Under Armour. The data information utilize to do this analysis was retrieved from the annual financial report of both organizations; this document will focus on competitor strategies, net income margins, inventory management, cash spending and liquidity. In the end we can use this information to assist in building a solid strategic plan for our company.

Competitor Strategies

When it comes to strategies Nike and Under Armour have two different plans on how to remain at the top of the athletic market worldwide. For instance in Nike 2018 letter to shareholders, it seems their key strategy is the “Triple Double strategy, which places a deeper focus on three core areas: Innovation, Direct and Speed; that are igniting the next phases of growth and profitability for Nike”. This strategy will come to life through what Nike calls Consumer Direct Offense; they project that new innovation concepts will contribute to 50% growth within the next five years. One of the innovation Nike will build on is performance innovation which assist athletics in bring their skills to a higher level; for example the Nike React was designed to be lightweight, provides energy return and streamlined design is the best multi-sport running shoes for athletes to use.

Under Armour 2018 annual report was not available yet; but in their 2017 letter to shareholders it seems there was a shift to their strategy to an effectively align with their resources and operations into an organization that is capable of supporting their powerful brand. One of the ways Under Armour striving to achieve this goal of long term strategies to successfully managing their cost structure while drive return on their investment. Their strategic growth plan already in motion are for specific areas such as footwear, international business and e-commerce and mobile applications offering worldwide.

Net Margins

According to Nike’s 2018 financial statement the net income margin was 5.3% which is a substantial decrease from 12.4% in 2017; a difference of -7.03% (Figure A). According to Under Armour 2017 annual report the net income margin was -0.97% which was a substantial decrease from the 4.10% in 2016 (Figure B).

In reviewing both organizations financial reports it is apparent that Nike has the hirer net income margin earing of $0.69 for each dollar of revenue earned, whereas Under Armour earning were -$0.11. Even though Nike net income decreased due to the Tax Act which offset a powerful revenue growth; it’s the stronger company compared to Under Armour.

Nike is continual growth and being able to cover all of its expenses, without losing focus on their overall goal; there cost of goods sold was $20.4M which was a 7.4% increase from 2017 and UA 2017 COGS was $2.7M which was a 5.9% increase from 2017. UA is showing a steady slow increase from 2014 to 2017.

Inventory Management

Nike inventory rose in 2018 by 4% due to the strong demand globally; this is shown through their days of inventory in May of 2018 it was 92.84 compared to 94.84 in 2017 and 96.20 in 2016 (Figure C). Whereas Under Armour (UA) days of inventory in 2017 was 138.39 compared to 120.07 in 2016 and 117.05 in 2015 (Figure D); this trend shows that UA is slower to move /sell their inventory. Each companies uses the FIFO accounting approach. Per accounting tools FIFO stands for the first in, first out “is the method of inventory valuations is a cost flow assumption that the first goods purchased are also the first goods sold .

Cash is King

Last year Nike generated $4.96B in net cash from operations while UA generated $234.06M. In 2017. It’s no surprised that Nike is the dominate company compared to Under Armour in regards to net cash, each company spends their net cash differently. In 2018 Nike used it net cash to invest into the company by building out its direct to consumer channel and over the next four years the company will repurchase $15B shares. Under Armour used its net cash for acquisitions and restructuring of the organization. Overall Nike has the better purchasing power.

Liquidity

Liquidity also known as current ratio is basically total current assets divided by the total current liabilities assets; for both companies their current ratios have exhibit a steady three year trend. Both organization show decreases in their current ratios; for Nike it went from 2.51 in May of 2018, May 2017 it was 2.93 and in May 2016 it was 2.80. In December 2017 UA current ratio was 2.21, December 2016 it was 2.87 and December 2015 it was 3.13. As stated earlier Nike is a stronger company financial compared to Under Armour; from the current ratios neither company is in jeopardy of filing for bankruptcy. Under Armour is going through tough times the past few years due to some bad acquisitions.

Conclusion

In conclusion for Salandy Inc., to become the number one athletic company we must not on create fashionable and innovative sports apparel and footwear but we most also continue to analyze the financial data of our competitors. Analyzing their financials will let us know exactly where each company stands as well as what mistakes we should not make as a company.

Figures Appendix

Net Profit Margin

Nike (Figure A)

Year Revenue Net Income Net Profit Margin
2018 36,397 1,933 5.31%
2017 34,350 4,240 12.34%
2016 32,376 3,760 11.61%
2015 30,601 3,273 10.70%

Under Armour (Figure B)

Year Revenue Net Income Net Profit Margin
2017 4,976,553 -48,260 -0.97%
2016 4,825,335 197,979 4.10%
2015 3,963,313 232,573 5.87%
2014 3,084,370 208,042 6.75%

Days of Inventory

Nike (Figure C)

Year Days of Inventory
2018 92.10
2017 94.84
2016 96.20
   

Under Armour (Figure D)

Year Days of Inventory
2017 138.39
2016 120.07
2015 117.05
   




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