NJCU

Managerial Finance #2477

Christian Lopez

Michael Fiedler

4/28/15

The company that I chose to do my financial analysis on was Under Armour, Inc. Under

Armour is in the textile – apparel and clothing industry. The sector that Under Armour belongs

to under their industry is the consumer goods sector. Major issues facing the textile industry is

trying to make the industry sustainable for years to come. As the world’s population continues to

grow the need for more clothing will also, a lot goes into producing apparel and footwear

including water to be able to dye clothing different colors and fuel and oil to be able to transport

the raw materials into production and then afterwards when they are finished goods the same fuel

and oil to transfer them to different countries. With the population growing and everyone using

more of the earth’s nonrenewable resources for different reasons they start to deplete quicker. If

companies do not shift to using more sustainable and renewable resources in creating their

merchandise and to transfer their merchandise than the world will get to a point where those

resources that are so important to manufacturing will be completely gone. Under Armour is a

dominant player in consumer goods but they do not manufacture their own products, they

purchase the textile products they use through third parties.

Under Amour’s products are produced in Asia and South America for the most part.

More than half of Under Armour’s goods are produced in countries in South America. Relying

on South America for more than half of your products to be produced can be very risky as South

America and its levels of crime make it very dangerous. With high cartel gang activity and high

levels of corruption it wouldn’t take much for an act of violence towards the people working in

the factories to force the factory to stop production momentarily. If you’re depending on more

than half of your inventory from those factories this scenario is a huge risk you could face.

Recently Under Armour has taken the number two sports brand spot in the United States

away from Adidas. Under Armour is now second to the biggest company in their market, Nike.

Under Armour has steadily stolen market share away from Nike and Adidas in the sports brand

section. Another risk Under Armour faces is the lack of contracts with their distributors, the use

of no contracts might put at ease your distributors since they aren’t locked in to carrying your

product for years, but as the business that is offering this chance it is very risky on your part. If a

large distributor fell on hard times financially and was forced to cut Under Armour product from

their store UA’s revenue would surely suffer.

Increases in labor wages and raw materials also put businesses that use textile products at

risk because margins are low on these consumer goods so shifts in the prices of raw materials

directly affect a company’s revenue. Not only other clothing and sneaker companies are

competing for the earth’s natural resources but almost every large company like Pepsi, Coca-

Cola and nestle all are Under Armour's competition when it comes to the use of earth’s natural

resources.

But as more time passes companies will no longer be able to depend on earths

nonrenewable resources and the worlds new businesses will have to be totally sustainable and the

ways of doing business in the past will no longer exist. As we get closer to this from happening

Under Armour must shift in what it uses to be more sustainable and natural or there will be a

point where they will have to discontinue some of their popular items because they don’t have

those resources available anymore.

In 2014 Under Armour's current ratio was 3.67 compared to its current ratio in 2013 of

2.65. This means that Under Armour has more money to cover its liabilities now than they did in

the past. This is probably due to them earning more income in 2014 than 2013. The quick ratio

for Under Armour in 2014 was 2.40 compared to their 2013 ratio of 1.55. This increase is a good

thing because the current ratio counts inventory in its current assets and quick ratio removes

inventory because if you needed money fast inventory is not something that can be converted to

cash fast. A quick ratio takes into account only the highly liquid assets where if you did need

money fast to either pay a debt or something like it you have enough in liquid assets to cover

your liabilities more than twice over. It’s very easy to have the current ratio paint a positive

picture of a company because if a company has a lot of inventory it can seem like they can cover

their debts, but having too much inventory is actually a bad thing because it could mean that the

company is having trouble selling it. This is why it is best to use the quick ratio over the current

ratio when reviewing companies to invest in.

Profit margin for the company dropped from 6.96% in 2013 to 6.75% in 2014. This is not

a good thing you want profit margins to continue to increase so your company can make more

money. Some items Under Armour introduced might have not sold at their suggested retail price

forcing Under Armour to net less on those items which would affect their profit margin. Return

on Assets also decreased from 10.29% in 2013 to 9.93% in 2014. This is another category that

you do not want to decrease, this stat says the company lost some efficiency in how they operate

and utilize their assets. The debt equity ratio in 2013 was .50 compared to the ratio in 2014

of .55. This means that Under Armour took on more debt, which you don’t really like to do but it

depends why they took on the debt also. If you take on more debt because you needed funding to

invest in a new technology you are developing the debt could pay off.

Inventory turnover for Under Armour went from 4.97 in 2013 to 5.75 in 2014. This

increase in ratio is a good thing becomes it means that Under Armour is turning over their

inventory faster and that is what a business hopes for. As soon as you get your inventory in stock

the faster you can get it sold the better. The day’s sales in inventory for 2013 was 143.21

compared to 124.61 in 2014. This decrease in ratio is also a good sign because inventory on

average is sitting in stock for fewer days. The quicker you turnover your inventory the quicker

you can have more in stock which will in turn make you more money.

The Price earnings ratio for under Armour in 2014 was 91.70, which is a decrease from

the 116.4 the company achieved in 2013. The decrease in the price earnings ratio is primarily due

to a stock split that under Armour did in the beginning of 2014. The high price earnings means

that the stock is selling at a substantially higher price than the earnings it is providing per share.

This could mean that investors are willing to pay more for this company based on what they

predict for its future and not base their investment choices on the company’s profits.

Under Armour’s receivables turnover for 2014 was 9.28 and their turnover for 2013 was

9.39. That figure means that in 2013 Under Armour was quicker and more efficient to collect on

its credit sales than in 2014. As a company you want to collect on credit sales the fastest you can

because that gives you more money to operate with. Not to mention credit sales that go

uncollected for a long time can mean that the company the credit was extended to could end up

not paying the sale due to financial difficulty. If the company doesn’t pay what they owe you

then it could end up costing your company money that you know have to write off as

uncollectable which in turn costs you money. With the exception of 1 or 2, these changes in

ratios are welcomed and tell you that Under Armour is becoming more efficient at selling their

product and even though they accumulate some more debt their cash has also gone up allowing

them to cover their liabilities more times over.

Under Armour's financials are good compared to the industry average. They have better

profit margins, better revenue growth, operating margin and almost everything else better or

equal to the industry average. Total cash flow from operating activities in 2014 was $219,033

thousand compared to $120,070 thousand in 2013. The main bulk of the change came from an

increase of about $70,000 thousand in accounts receivables meaning that Under Armour sold a

lot of items on credit and their changes in inventory also support this idea. The income in 2013

was $162,330 thousand compared to the income in 2014 of $208,042 thousand. This is a change

of $45,712 thousand and mostly occurred because of the increases in depreciation and net

income due to the selling of a lot of inventory on credit in 2014.

Under Armour has a credit rating of class A on its debt which is good and a high rating so

there is less risk. Under Armour does not currently pay dividends to its shareholders nor have

they ever offered their investors a buyback or repurchase program. Under Armour retains all of

its earnings to further invest into the company.

With under Armour the expected return is higher than the required return so investors

would invest into it. There has been a lot in the news about the Under Armour stock and about

how analysts feel that it is trading at too high of a price. Analysts say this because the company

does not pay dividends so money will not be made through dividends but rather when the

company is purchased or acquired by someone else that is when investors will profit on their

shares.

The price is high on Under Armour stock because of its recent success and growth. Under

Armour is being projected as the next large competitor to be able to compete against the giant in

the market, Nike. As under Armour starts to further invest into more sports it will continue to

climb and create more value for its investors in return. Under Armour currently has sponsored

athletes in every sport from boxing and basketball to auto racing and skiing. With Under Armour

only now starting to get large recognition, in my opinion it would be a wise choice to invest in

them sooner than later since the stock seems to be moving up in price as the months pass.

Works Cited

Under Armour May Be Overstretched. (n.d.). Retrieved April 28, 2015, from

http://www.bloomberg.com/bw/stories/2007-04-29/under-armour-may-be-overstretched

Under Armour, Inc. - Financial History. (n.d.). Retrieved April 28, 2015, from

http://investor.underarmour.com/income.cfm

Beneath the (Under) Armour: A Green and Ethical Company? (n.d.). Retrieved April 28,

2015, from http://www.thunderbird.edu/blog/faculty/washburn/2011/04/18/beneath-the-under-

armour-a-green-and-ethical-company

Obstacles To Under Armour's Growth. (n.d.). Retrieved April 28, 2015, from

http://www.nasdaq.com/article/obstacles-to-under-armours-growth-cm317425

Under Armour, Inc. (2014, December 31). Retrieved April 28, 2015, from

http://finance.yahoo.com/q?s=UA