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FinancialAnalysis Project

Progressreport 2

Whenit comes to making financial decisions, it is essential to carry outproper financial analysis so as to examine the financial health ofthe business. Financial analysis is a systematic process of examiningthe financial statements of a firm with an aim of assessing itsperformance. Financial analysis can be done using quantitativeanalysis or qualitative analysis. Under qualitative analysis, weshall assess those issues which cannot be expressed in monetary termsbut have a great influence to the performance of the company. Theseissues will include thing like number of permanent customers in ourdatabase, competitive advantage, copy right, product differentiationamong others. At Under Armour, Inc., we have decided to put moreemphasis on quantitative issue. We shall carry out quantitativeanalysis which is also known as ratio analysis. Financial ratiosanalysis will help us to identify and asses the liquidity of the firmor in measuring its insolvency.

Thisreport is prepared to create a clear analysis of the company and itgives a evaluation of the profitability, liquidity and alsorecommendations for long term and short term investments and credits.

Question1

Ratioanalysis (year 2013)

  1. Return on Equity (Return on Owners’ Investment)

Returnon equity (ROE) is a measure of profitability from the shareholderspoint of view. This ratio indicates the returns on the amount thatthe shareholders have invested in the firm. In this case of ourcompany, this ratio is computed as follows

ROI= %

Forthe most current year 2013 Net profit = $162,330,000 andshareholder’s equity = $1,577,741,000 therefore, ROE in AU is givenby

ROE= %= 10.29%

  1. Return on Assets (Return on Total Investment)

Returnon investment (ROI) is a measure of profitability on the assetsinvested in the firm. This is a good indicator of how assets areutilized in generating profit for the firm.

ROI= %

ROI= %= 38.04%

  1. Earnings per Share

Will relate the profitability of the business to the total number ofshare outstanding. Fir our company, earning per share for our companywill be given by

EPS=

  1. Profit Margin

Thiscompares the level of profit to the level of sale. The profit marginof Under Armour Inc. will be computed as follows

Profitmargin =

  1. Current Ratio

Thiswill help in assessing the ability of the firm in meeting its currentobligations by using its current assets. This is computed as follows

Currentratio =

  1. Quick Ratio

Thismeasures the ability of the firm meeting its current obligations byusing its most liquid assets. In this ratio analysis, stock isexcluded from the current assets. For AU Company, this ratio will becomputed as follows

Quickratio =

  1. Receivable Turnover

Itrepresents the number of times payments are made from credit sales.It is computed as follows

Receivableturnover =

  1. Inventory Turnover

Thiswill show the number of times restocking is done in the course of theyear. It is computed as follows

Inventoryturnover =

  1. Times interest earned

Thisratio shows the extent to which the company is capable of payinginterests and loans principals from its normal operations. It iscalculated as shown below

Timeinterest earned ratio =

  1. Debt to Equity ratio

Itshows how finances are used to fund business assets. It is computedas

Debtto equity ratio =

  1. Price/Earnings (P/E) ratio

Thiswill be used to indicate the payback period of investment as well asindicating the growth of the company. The Price earnings ratio for AUInc. will be computed as follows

P/Eratio =

Question2

CompetitionAnalysis

Theclosest competitor to Under Armour Inc. which is our firm isAbercrombie&nbsp&ampFitch Co.Abercrombie&nbsp&ampFitch Co.is also majoring in this industry of apparel wear and its operationsare much closer to those of our company.

Ratioanalysis at Abercrombie&nbsp&ampFitch Co

  1. Return on Equity (Return on Owners’ Investment)

ROI= %= %= 4.96%

  1. Return on Assets (Return on Total Investment)

ROI= %= %= 13.26%

  1. Earnings per Share

EPS=

  1. Profit Margin

Profitmargin =

  1. Current Ratio

Currentratio =

  1. Quick Ratio

Quickratio =

  1. Receivable Turnover

Receivableturnover =

  1. Inventory Turnover

Inventoryturnover =

  1. Times interest earned

Timeinterest earned ratio =

  1. Debt to Equity ratio

Debtto equity ratio =

  1. Price/Earnings (P/E) ratio

P/Eratio =

Appendixsummary of the two companies

Ratio

Under Armour Inc.

Abercrombie&nbsp&amp Fitch Co

Return on Equity

10.29%

4.96%

Return on Assets

38.04%

13.26%

Earnings per Share

$1.55

$0.52

Profit Margin

48.7%

45.23%

Current Ratio

2.65

2.38

Quick Ratio

2.53

2.14

Receivable Turnover

11.11

17.08

Inventory Turnover

2.55

1.03

Times interest earned

88.98

57.15

Debt to Equity ratio

45.52

25.42

Price/Earnings (P/E) ratio

43.8

33.31

Task1)

Profitability

Profitabilityis measured by ratios such as Gross profit margin, return oninvestment and return on equity. By comparing the two abovecompanies, we can conclude that Under Armour Inc Company is moreprofitable that theAbercrombie&nbsp&amp Fitch Co.This is as evident in the appendix shown in the table above.

Task2)

Cashflow analysis

Thecash flow from operating activities in the year 2013 is differentfrom the net income in our company. This difference is contributedcredit sales and our debtor’s collection period. Most of the salesin UA are made on credit bases and it might take a longer time thanexpected to make corrective collections. Cash flows from operatingactivities are record of cash inflows and out flows from businessdaily operating activities (Minniti et al., 2011).

Liquidityand Capital Structure

1)

Thefirm will be able to meet its current obligations as they become due.This is as indicated by the current ratio and the quick ratio whichhave met the recommended limit. Even though the two firms have adesirable liquidity ratio, UA Inc. is more capable of paying itsobligation as they become due. This is because it has got a highercurrent and quick ratio as compared to that of Abercrombie&nbsp&ampFitch Co.

2)

Thecapital structure of a company is measured by the Gearing ratios.These ratios include debt ratio and debt to equity ratio. For UAInc., 45.52% of the assets is financed by liabilities while 54.48% isfinanced with equity.

3)

Thecapital structure of the two companies is not far much different dueto the fact that they are both operating in the same industry.

Recommendation

Eventhough the two companies have proven to be profitable, it isadvisable for a rational investor to invest in Under Armor Inc. thanin Abercrombie&nbsp&ampFitch Co.The primary aim of all investors is on return maximization andtherefore, our firm is offering more earnings per share as comparedto our competitor’s. For an investor to maximize on returns, UAInc. is the best option. To better our performance, there is a needto finance our operations by both long term and short term source offinance.

WorkCited

EugeneB. &amp Michael E.FinancialManagement: Theory &amp Practice. (2008).Branzil:Amazon.

“FORM10-K Annual Report.’’ ABERCROMBIE&nbsp&ampFITCH CO.2013. SEC Filing. Web. 08thMarch. 2015.

Kotler,Philip, and Kevin L. Keller. MarketingManagement.Harlow: Pearson Education, 2012. Print.

Minniti,Maria, Andrew Zacharakis, Stephen Spinelli, Mark P. Corporatefinancial management 4thedition.Britain: (2011).PearsonEducation.