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6/11/2020
Subject: Nike Vs Under Armour on Hand Analysis
From: ______________________
Introduction
Nike Inc is one of the biggest wholesalers and retailer in sporting and apparel business.
Similarly, Under Armour is a retailer plying its trade in Sports Apparel Clothing and Equipment
industry. The annual cost of revenue in 2018 for Nike and Under Armour was approximately
$22536 and 4245 million US dollars respectively. The Inventory value for Nike ($5261 million)
is way high than the inventory for Under Armour ($423 million).However, both companies have
an approximated carrying cost of 25% since they are operating within the same industry.
Results
Table: Inventory Computations
Company Name
Cost of revenue (In
Million US Dollars)
Inventory (In Million
US Dollars)
Inventory
Turnover
Days of
Inventory
Nike Inc.
22536
5261
3.87859
94.10636
Under Armour
4245
423
8.38123
43.54969
Calculations: Nike
Inventory Turnover =
Cost of Goods Sold (COGS)
Inventory
=
22536
5261
= 4.2835
Days of Inventory =
365 Days
Inventory Turnover
=
365
4.2835
= 85.21 days
Calculations: Under Armour
Inventory Turnover =
Cost of Goods Sold (COGS)
Inventory
=
4245
423
= 10.035
Days of Inventory =
365 Days
Inventory Turnover
=
365
10.035
= 36.37 days
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From the above inventory analysis table, inventory turnover ratios for Nike Inc. and
Under Armour are 4.2835 and 10.035 respectively. Under Armour enjoys a higher turnover ratio
(10 times) as compared to Nike Inc. (4.3 times). Actually, the inventory turnover ratio for Under
Armour is over two times higher than that of Nike Inc. Consequently, Under Armour has a
balanced stock, higher sales, and better liquidity compared to Nike.
Days of inventory refers to the number of days a firm or business takes to convert its
inventory to sales. From the calculations above, Under Armor has a better days of inventory
(36.37) as compared to the Nike’s days of inventory (85.21). Therefore, the likelihood of Under
Armour to convert its inventory to sales is 2.34 times faster than Nike. Even though, Nike and
Under Armour ply their trade in sports apparel industry, the difference between their days of
inventory is notable. Such a big inventory turnover ratio difference could be as a result of Nike
purchasing bulky inventories than Under Armour or the price point resulting from difference in
business modelling.
Improvement Opportunity
There is room for improvement for Nike Inc. For Nike to be at par with Under Amour Inventory
turnover ratio, Nike should reduce their first year’s cash annual inventory and annual inventory
carrying cost by $3015.260 Million and $$753.815 Million.
Improvement opportunity Calculations:
New inventory cost =
Cost of revenue
New turnober
=
22536
10.035
=US $2245.7399 Millions
Reduction in Inventory =Old Inventory New Inventory = 5261- 2245.7399= US $3015.260
Millions
Annual savings = Inventory reduction * carrying cost rate = 3015.260 *0.25 = US $753.815
Millions
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Appendix
Financial Data Sources:
https://www.macrotrends.net/stocks/charts/UA/under-armour/total-assets
https://www.macrotrends.net/stocks/charts/NKE/nike/total-assets

Unformatted Attachment Preview

6/11/2020 Subject: Nike Vs Under Armour on Hand Analysis From: ______________________ Introduction Nike Inc is one of the biggest wholesalers and retailer in sporting and apparel business. Similarly, Under Armour is a retailer plying its trade in Sports Apparel Clothing and Equipment industry. The annual cost of revenue in 2018 for Nike and Under Armour was approximately $22536 and 4245 million US dollars respectively. The Inventory value for Nike ($5261 million) is way high than the inventory for Under Armour ($423 million).However, both companies have an approximated carrying cost of 25% since they are operating within the same industry. Results Table: Inventory Computations Company Name Nike Inc. Under Armour Cost of revenue (In Million US Dollars) 22536 4245 Inventory (In Million US Dollars) 5261 423 Calculations: Nike Inventory Turnover = Cost of Goods Sold (COGS) Inventory 365 Days = 22536 5261 = 4.2835 365 Days of Inventory = Inventory Turnover= 4.2835= 85.21 days Calculations: Under Armour Inventory Turnover = Cost of Goods Sold (COGS) Inventory 365 Days 365 = 4245 423 = 10.035 Days of Inventory = Inventory Turnover= 10.035= 36.37 days Inventory Turnover 3.87859 8.38123 Days of Inventory 94.10636 43.54969 From the above inventory analysis table, inventory turnover ratios for Nike Inc. and Under Armour are 4.2835 and 10.035 respectively. Under Armour enjoys a higher turnover ratio (10 times) as compared to Nike Inc. (4.3 times). Actually, the inventory turnover ratio for Under Armour is over two times higher than that of Nike Inc. Consequently, Under Armour has a balanced stock, higher sales, and better liquidity compared to Nike. Days of inventory refers to the number of days a firm or business takes to convert its inventory to sales. From the calculations above, Under Armor has a better days of inventory (36.37) as compared to the Nike’s days of inventory (85.21). Therefore, the likelihood of Under Armour to convert its inventory to sales is 2.34 times faster than Nike. Even though, Nike and Under Armour ply their trade in sports apparel industry, the difference between their days of inventory is notable. Such a big inventory turnover ratio difference could be as a result of Nike purchasing bulky inventories than Under Armour or the price point resulting from difference in business modelling. Improvement Opportunity There is room for improvement for Nike Inc. For Nike to be at par with Under Amour Inventory turnover ratio, Nike should reduce their first year’s cash annual inventory and annual inventory carrying cost by $3015.260 Million and $$753.815 Million. Improvement opportunity Calculations: New inventory cost = Cost of revenue New turnober 22536 = 10.035 =US $2245.7399 Millions Reduction in Inventory =Old Inventory – New Inventory = 5261- 2245.7399= US $3015.260 Millions Annual savings = Inventory reduction * carrying cost rate = 3015.260 *0.25 = US $753.815 Millions Appendix Financial Data Sources: https://www.macrotrends.net/stocks/charts/UA/under-armour/total-assets https://www.macrotrends.net/stocks/charts/NKE/nike/total-assets Name: Description: ...
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