A critical financial accounting skill is the ability to read, analyze, and to make actionable determinations
from any financial statement. Business leaders gain valuable information from the analysis of their financial statements, the competitors' financial statements, and comparison to industry averages.
The Situation
You are the CFO of an up-and-coming athletic company, which desires to someday become the #1
athletic company in the world. Strategically, the company uses Nike and Under Armour as their key
competitor benchmarks. Your CEO is a big believer in learning from the competition and is requesting two
things from you regarding Nike and Under Armour's most recent annual reports.
Part One: The Executive Summary
No more than 2 pages (can include an appendix with additional graphs, charts, and tables).
1) Competitor Strategies
• Identify and explain one key strategy from each company that the company explicitly
discussed in the annual report.
2) Net Income Margins
• What are the net income margins for both companies?
• How do they compare?
• Who achieves the higher net income margin? Why?
• Tip: Analyze the major cost structure line item in the income statement (COGS, SG&A,
interest, other, and taxes) as a percentage of net sales to identify reasons for better net
income margins. Identify and comment on the differences you see. You may not know
why a particular cost item like COGS is higher or lower, but your CEO only seems
interested in knowing which cost structure items are higher or lower for each company.
3) Inventory Management
• Who has more inventory in terms of days of inventory last year?
• What are their respective 3-year trends for days of inventory?
• What does FIFO/LIFO mean, and which accounting approach does each of the
companies use to value their inventory? (The accounting approach can be found in the
Notes section.)
4) Cash is King
• How much net cash from operations did each company generate last year?
• In laymen's terms, how is each company spending their cash with respect to
reinvestments in the business, changes in debt, and returning money to shareholders?
5) Liquidity
• How is the current ratio calculated?
• How do the companies compare in terms of the current ratio, and what are their respective 3-year trends?
• Does their current ratio indicate that either (or both) of these companies could go bankrupt soon? Explain