Annual Report Review Case Solution

Cash is King

Nike

The net operating cash flow of the last year was $4,680 million. Nike is making heavy investment in its fixed assets. It  is pursuing a growth strategy. On the other hand, it is also acquiring short-term investments. The company is decreasing its long-term debt, while it also repurchases common stock. It has not declared any cash dividend for the year 2014 and 2015.

Under Armour

The net operating cash flow of the last year was $-44 million. The company has been making huge capital expenditure as well as it is acquiring new businesses. This means that the company is on an aggressive growth strategy, it wants to increase its market share and competitive advantage. Company has been using mix of debt sources and it issues stocks to gain more cash. The company pay dividend to its shareholders as opposed to Nike.

Liquidity

Current ratio is calculated by dividing the current asset over the current liabilities. For Nike, the current ratio decreased sharply in the year 2014 and then rose up again in the year 2015. Under Armour has an increasing current ratio with 3.13 in 2015. The current ratios of both the companies are favorable as they can pay their short term conveniently. Therefore, there is no possibility of bankruptcy.

Appendices

Exhibit 1

$ IN MILLIONS
2015
Nike Under Armour
Net Income 3273 232.573
Sales 30601 3963.313
Cost of sales 16,534 2057.766
Total selling and administrative expense 9,892 1497
Interest expense 28 14.628
Other Expense -58 7.234
Income tax 932 154.112
 
 
INCOME MARGIN 10.70% 5.87%
COS AS A % OF SALES 54.03% 51.92%
SELLING & ADMIN AS A % OF SALES 32.33% 37.77%
 INTEREST EXPENSE AS % OF SALES 0.09% 0.37%
OTHER EXPENSE AS % OF SALES -0.19% 0.18%
INCOME TAX EXPENSE AS % OF SALES 3.05% 3.89%

Exhibit 2

NIKE   Under Armour  
2015 2014 2013 2015 2014 2013
Current Assets 15,976 3,947 13,630 1498.763 1549.399 1128.811
Current Liabilities 6,334 5,027 3,962 478.81 421.627 426.63
Inventory 4,337 3,947 3,484 783.031 536.714 469.006
 
Current ratio 2.52 0.79 3.44 3.13 3.67 2.65
Inventory days 96 94 89 139 125 143

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