Team Under Armour RTZ
Report to Upper Management
Patrick Tye, Joe Shocker, Mike Chelala,
Crystal Li, Kyle Lynch, and Sam Chen
Dear Mr. Plank,
To ensure the longevity of Under Armour’s success our team has done a financial
analysis of Under Armour’s statements from 2009-2012. We looked at its balance sheet,
income statement, and statement of cash flows in addition to crucial financial ratios that
speak to the health of the company. In order to measure Under Amour’s relative strengths
and weaknesses we compared its financials to Columbia Sportswears’. Here are our
findings:
To begin with, the overall impression Under Armour leaves is quite impressive. Under
Armour’s growth has been significant and steady. Its revenue exceeded 1.83 billion in
2012, which is a 153% growth rate from 2009, and YOY growth of 24.6% (from 2011 to
2012). In comparison to one of its competitors, Columbia Sportswear, it has experienced
much more growth in sales. Columbia experienced a negative YOY growth from 2011-
2012 of 1.5 percent (-1.5). In short Under Armour has been experiencing impressive, but
manageable growth.
Examining financial ratios of the two companies is key to assessing their strengths
and weaknesses. The first ratio that is important to look at is the current ratio; as of 2012
the company’s ration is 3.6. Superficially, the number looks good and signals
shareholders that it is most likely capable of paying off short-term debt. Another piece of
information that would help assess the state of the company is the average amount of
times it takes for Under Armour to collect receivables. This information would be useful
to better gauge the liquidity of the company. Under the assumption that Under Amour is
liquid enough, you may be better off reinvesting some of the excess capital back into
your business so that you can meet future revenue projections. Under Armour’s 2012
current ratio 3.6 compared to Columbia’s 4.5. Under Armour has much more cash than
Columbia, but one advantage that Colombia has is that is has very few short-term
liabilities. That may be another way Under Armour should spend their cash in the future
to avoid too much accumulation of dept.
Under Armour’s growth margin ratio has sat steady around 50% compared to
Columbia’s 43% which means they are retaining more revenue from their sales than
Columbia. The company has a low cost of goods sold compared to Colombia, but there is
always room for creating larger margins for profit. It is important when keep costs low,
that the quality of the product remains the same.
Under Armour’s is efficiency is extremely competitive. It has an asset turnover
ratio of 1.6 compared to Columbia’s 1.2 and quantitatively managed better than
Columbia. Its return on assets is 11.1%, which is a steady 3.3% increase from 2009. As
their company has expanded they are getting better returns from their assets. 2012’s
11.1% trumps Columbia’s 6.8%.
Cash flow data that was significant in the reports were the operating cash flows
and the capital expenditures. The volatility of cash flows coming in from operating
activities would look better if the cash flows were more stable. The numbers over the four
years range from 15 million to 200 million. Regardless of what revenues are, the amount
of cash the company actually receives—versus sales on credit—are crucial to Under
Armour’s vitality. Under Armour’s growth in sales have been tremendous, but the
company may need to change the way they collect cash for sales on credit. Another
number that may have been a bit low was capital expenditures. The company has plenty
of capacity for growth and it may need manufacturing equipment or other infrastructure
to produce more goods.
Overall the report for Under Armour is extremely positive, especially compared to
its competitor, Columbia. It’s YOY growth is just as impressive as its financial strength
compared to its competitors. Areas that Under Armour should keep an eye on are its
operating cash flows and possibly creating a bigger budget for capital expenditures. Also,
to avoid the accumulation current and long-term liabilities, it should consider using cash
instead of credit for some transactions.