Annual Report Review Case Solution
Competitor Strategies
Nike
This strategy can be explained as Nike want continuous growth in its revenues and this will be achieved through making the products more innovative and diversified. Nike wants it product to be differentiated from other competitors. The company strategy is to reduce costs and enhance its supply chain.
Under Armour
The company strategy is also to increase its revenues but compared to Nike, Under Armour focuses on increasing its product visibility and customer awareness. It uses its supply chain and distributors to market its products and offerings.
Net Income Margins
Net margins and other ratios are calculated using the financial reports of the both companies. Analyzing these ratios, Nike has greater net margin ratio than Under Armour. Nike has net profit margin ratio of 10.7% as compared to net profit margin ratio of 5.8%. Many factors affect the net profit of the company. Analyzing further, Nike has greater cost of sales ratio as compared to the UA. Looking at Sales and admin expense, Nike is efficient in this segment with 32.33% ratio of expense over sales. Nike also has lower interest expense ratio and other expenses; here the negative other expenses means, that the other income is more than other expenses. The income tax is also low at 3.05% as compared to 3.89% for Under Armor, see exhibit 1.
Inventory Management
Under Armour has more inventories in terms of days, its inventory days are 139 as compared to Nike’s 96 days. For Nike, the inventory days are in an upward trend. This means that the company has to hold inventory for more days to sell off them. On the other hand, Under Armour inventory days decreased in year 2014 and then again increased in year 2015. Therefore, it has volatile inventory days.
FIFO inventory method is defined as the First-In First-Out method, in which the inventory, which is received earlier or purchased first are assumed to be sold first before other inventory is sold. LIFO method is opposite of the FIFO method. LIFO, Last-In First-Out assumed the inventory flow to be, that the last purchased item is sold at first and removed from the inventory to make sales.
Nike has the weighted average method, which assumed inventory cost to be weighted average over the entire inventory and inventory is removed randomly irrelevant to be first or last. Under Armour uses the FIFO method...................
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