Ratio Analysis Assignment

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Liberty University *

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506

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Finance

Date

Jan 9, 2024

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docx

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Uploaded by DeanThunderJackal32

Ratio Analysis Assignment Juan Ayala SMGT506_D02 Dr. Thomas Mingus 12/15/2023

Title: A Comparative Analysis of Nike and Under Armour: A Financial Perspective Abstract: Nike and Under Armour are two giants in the sportswear and athletic apparel industry, each carving out its niche and global market presence. Understanding their financial positions is crucial for investors, stakeholders, and enthusiasts alike. This analysis delves into four key financial metrics — liquidity, activity, financial leverage, and profitability — to compare and contrast the financial standing of Nike and Under Armour. Liquidity: Liquidity measures a company's ability to meet its short-term obligations. Nike, with its vast global footprint, generally exhibits strong liquidity. The company's current ratio (current assets divided by current liabilities) is often above industry averages, indicating a robust ability to cover short-term obligations. This is attributed to Nike's efficient inventory management and strong cash position. Under Armour, while not lacking in liquidity, might not match Nike's levels. The current ratio is generally lower due to its relatively smaller scale and newer market presence. However, it is crucial to note that both companies maintain sufficient liquidity to navigate short-term financial requirements. Activity: Activity ratios assess how efficiently a company utilizes its assets to generate revenue. As a seasoned industry player, Nike boasts commendable asset turnover ratios, emphasizing its

effective utilization of resources. The company's economies of scale enable it to generate substantial revenue without excessively tying up capital. Under Armour, a comparatively newer entrant may exhibit lower asset turnover ratios. However, this is not necessarily a negative sign; it could indicate that the company is still growing and investing in assets to expand its operations. Over time, Under Armour's activity ratios may improve as it matures in the market. Financial Leverage: Financial leverage measures a company's reliance on debt to finance its operations. Being financially robust, Nike often maintains a healthy balance between debt and equity. Its debt-to- equity ratio is typically moderate, reflecting a prudent approach to capital structure. Nike's consistent profitability and cash flow allow it to service its debt obligations comfortably. Under Armour, as a younger player, might resort to a higher degree of financial leverage to fuel its growth initiatives. While this strategy can amplify returns during prosperous times, it also significantly exposes the company to higher risks if market conditions deteriorate. Investors and analysts closely monitor Under Armour's ability to manage debt levels and ensure sustainability. Profitability: Profitability is crucial for assessing a company's success in generating shareholder returns. With its well-established brand, Nike often enjoys higher profit margins than Under Armour. Nike's strong market presence allows it to command premium prices, contributing to its superior profitability. The company's consistent investment in marketing, innovation, and endorsement deals has solidified its competitive advantage.

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Under Armour might face challenges in matching Nike's profitability levels. As a newer entrant, it may need to navigate a more competitive landscape, potentially impacting its margins. However, if Under Armour successfully establishes itself as a prominent player, it could experience margin expansion over time. Conclusion: In summary, while operating in the same industry, Nike and Under Armor exhibit distinct financial positions. As an industry leader, Nike enjoys superior liquidity, efficiency, and profitability. Its well-established brand and global reach contribute to its financial strength. On the other hand, Under Armour, a younger player, may not match Nike's financial metrics but displays growth potential. Investors should consider the differences in liquidity, activity, financial leverage, and profitability when making informed decisions about these two companies, recognizing that each has unique strengths and challenges in the dynamic sportswear market . References: Jaworek, M., Wlodzimierz, K., & Kuczmarska, M. (2021, April 30). Source of success of the most valuable sportswear brands in the world. Torun, Poland. Messner, P., & Herrmann, T. (2005). How to set-up a corporate user experience team. Proceedings of the 7th International Conference on Human Computer Interaction with Mobile Devices Services. https://doi.org/10.1145/1085777.1085873