Sample Case Study On Under Armour
Financial analysis is the research process of financial condition and the main results of financial activity in order to identify the reserves for increasing its market value and provide further effective development. The results of the financial analysis are the basis for management decisions and the creation of a strategy for further development of the company. Therefore, the financial analysis is an integral part of financial management, its most important component (Keown, Martin, Petty and Scott, 2001).
Under Armour was chosen for conducting financial analysis, because it is one of the most innovative and conceptual companies in the production of sports equipment in the world, giving many mastodons, such as Nike and Adidas, a head start in certain directions. There are a lot of them: football, rugby, hockey, baseball, and, recently even soccer. A nice feature of the activities of the American company Under Armour is that it went originally on its way, developing and implementing only its own technology. Since 1996, Under Armour clothing showed its owners as innovators, who are constantly moving forward. That year a former college football player Kevin Plank created a compression shirt with patented technology HeatGear®. He was tired of twisting cotton t-shirts, and waiting until they are dry. T-shirt was created from a synthetic fabric, which displays the moisture dries much faster and much lighter than conventional cotton t-shirt. The advantages of these models were quickly appreciated (Under Armour, Inc., 2014).
The most important groups of financial indicators are liquidity indicators; indicators of financial stability and solvency; profitability; turnover (business activity) indicators and indicators of market activity. The company is considered liquid if it can pay its short-term liabilities due to the sale of current (current) assets. Financial stability of the organization depends on the level of its financial independence and its solvency level. Profitability is a use of funds, when the organization does not only cover its costs by income, but gains profits. Business activity indicators enable to analyze how well the company uses its funds. Indicators of market activity characterize the situation of (ordinary) shares of the company on the stock market with the purpose of further assessment of investment attractiveness (Brigham and Houston, 2011).
Liquidity ratios are (Morningstar, 2015):
Lenders generally use current ratio in assessing the current financial position of the organization, granting it the danger of short-term loans. The higher the current ratio, the more liquid assets are (Keown, Martin, Petty and Scott, 2001). As Under Armour’s value of the ratio is above 2, the company’s payment capacity to repay current liabilities subject to the timely payments with borrowers is positive.
Cash ratio reflects the adequacy of the most liquid assets for quick payment of current liabilities, characterizes the “instant” solvency (Brigham and Houston, 2011). So, Under Armour’s value of the ratio means sufficient amount of free cash that could be used for business development.
Financial stability and solvency ratio is (Morningstar, 2015):
Debt/Equity ratio gives an understanding of what sources of funds the organization has more – attracted (borrowed) or its own (Brigham and Houston, 2011). As company’s Debt/Equity ratio is very low it shows the dependence on the shareholder’s equity. It is the indicator of company’s financial stability.
Profitability ratios are (Morningstar, 2015):
Return on Equity ratio is an important financial indicator of return to the investor and the owner of the business, showing how effective the invested funds were used in business. The higher return on equity, the better it is for the organization. However, the high value of the ratio can happen because of too high leverage and a small fraction of equity that is bad for the financial stability of the organization (Keown, Martin, Petty and Scott, 2001). Under Armour’s value shows quite positive result for investors.
Gross margin ratio shows the share of gross profit in the amount of company’s sales (Brigham and Houston, 2011). Company’s gross margin has medium value that demonstrates its efficiency of production.
Turnover (business activity) ratios (Morningstar, 2015):
Inventories are the least liquid current assets section, so the speed of their transformation into cash impacts on the liquidity of the company (Brigham and Houston, 2011). Under Armour’s Inventory turnover ratio is high, so its current assets’ structure is quite liquid and company’s financial position is quite stable (ceteris paribus). Under Armour’s Asset turnover ratio characterizes the efficient use of resources mobilized for the organization of production.
Market activity ratios are (Morningstar, 2015):
The value of company’s Book Value Per Share shows significant share of its net assets attributable to one ordinary share in circulation in accordance with the accounting data and confirms the existence of each issued share by relevant company’s property. Under Armour’s value of Earnings Per Share shows that it spends 75% of net profit per one ordinary share in circulation.
In general, Under Armour is very stable and financially sustainable company. It has enough equity for serving debt, liquid assets, effective use of invested funds and resources. Due to positive dynamic of development the company doesn’t have visible problems.
The structure can be considered as an established model of technical and technological, economic and other interactions between the elements of the organization – its units and individuals specialized in certain activities (Price, 2011).
Under Armour’s Organizational Chart consists of Board of Directors and subordinated to CEO units, namely CFO, CIO, COO & Product (→ Run), Supply Chain, North America, International, United States Sales, Brand & Sports Marketing and eCommerce (The Official Board, 2015).
Board of Directors includes (Under Armour, Inc., 2015):
Kevin A. Plank, Chief Executive Officer and Chairman of the Board
Byron K. Adams Jr., Former Managing Director and Founder of Rosewood Capital, LLC
George W. Bodenheimer, Former President, ESPN, Inc. and ABC Sports
Douglas E. Coltharp, Executive Vice President and Chief Financial Officer, HealthSouth Corporation
Anthony W. Deering, Former Chief Executive Officer and Chairman, The Rouse Company
Karen W. Katz, President and Chief Executive Officer, Neiman Marcus Group LTD LLC
A.B. Krongard, Former Chief Executive Officer and Chairman, Alex.Brown, Incorporated
William R. McDermott, Chief Executive Officer and Executive Board Member, SAP AG
Eric T. Olson, Admiral, U.S. Navy (Retired) and Former Commander, U.S. Special Operations Command
Harvey L. Sanders, Former Chief Executive Officer and Chairman, Nautica Enterprises, Inc.
Thomas J. Sippel, Partner, Gill Sippel & Gallagher.
The company is recommended to establish HRM Department because employing more than 7 thousand people there should be the unit for regulation of the relations between employees. The determining factor in competitiveness, economic growth and efficiency, is the availability of human resources in the company, capable professionally solve production tasks. For effective personnel management the company needs a coherent system of working with personnel to manage them from the time of recruitment to retirement.
At the moment, Under Armour sneakers are represented in all major areas of sports, and stepped into the world of specialized tactical equipment of the US military, and has already managed to find fame there, as the company is concerned by producing only quality footwear. The company’s revenue continues to increase in astronomical progression, the company signed new stars, contracts with universities, strongly supports sports, involved in charity and continues to conquer the market, quietly expanding out of the United States borders. Thus, its financial condition is very stable. Concerning its organizational structure it is necessary to organize HRM Department.
Keown, A. J., Martin, J. W., Petty, W. D. and Scott, D. F. (2001). Financial Management: Principles and Applications (9th Edition), Prentice Hall.
Under Armour, Inc. (2014). 2013 Annual Report On Form 10-K. retrieved from http://files.shareholder.com/downloads/UARM/3938504253x0x735952/1020FA20-6420-440E-8167-BCD7DB8D5422/2013_Annual_Report.pdf
Morningstar (2015). Under Armour Inc. Class A. Retrieved from http://financials.morningstar.com/ratios/r.html?t=UA®ion=usa&culture=en-US
Brigham, E. F. and Houston, J. F. (2011). Fundamentals of Financial Management. Concise 7th ed. Cengage Learning.
Price, A. (2011). Human Resource Management, 4th Revised ed., Cengage Learning EMEA.
Under Armour, Inc. (2015). Board of Directors. Retrieved from http://investor.underarmour.com/directors.cfm
The Official Board (2015). Under Armour. Retrieved from http://www.theofficialboard.com/org-chart/under-armour