Paper Example on Nike vs. Under Armour: Liquidity of the Two Companies

Introduction

Nike integrates sustainable innovation into its business policies, products and processes to benefit the company, athletes and stakeholders. Its intensive growth strategy reflects a focus on investing in disruptive sustainable innovation to attain closed-loop future on minimizing environmental footprint, transforming manufacturing and unleashing human potential. Firstly, it prioritizes understanding its environmental impacts within its supply chain and identifying strategies to reduce water and energy wastage. Secondly, its differentiation strategy allows it transform its products and their production using new technology and labor innovation sustainably (Gregory, 2017). The focus on sustainable innovation reflects in combining cost leadership and differentiation strategies to boost its performance and net margins through new shoes and lower production cost. Adopting differentiation strategy enables Nike to maximize profit margins through new products (Nike, 2017). It aligns the differentiation strategy to its mission of unleashing human potential in their respective areas, field, office, track and home.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Under Armour utilizes cost leadership and differentiation strategy using category management and cost structuring to overcome recent operational inefficiencies. Its generic strategy feature balancing its operational and financial discipline through brand-forward design keeping consumers at the heart of the transformation (Wong, 2018). The restructured model feature strengthening its ecosystem using a disciplined go-to-market approach aligned through consumer-led differentiation in the product diversification. Like Nike, its diversification strategy seeks to expand Under Armour portfolio across categories to create the seamless brand-right experience using direct-to-consumer approach to improve segment performance (Under Armour, 2017).

Net Income Margins Comparison

From the year 2017, Nike realized a net profit margin of 12% while Under Armour reported a negative profit margin of 1%. This performance indicates Nike edged Under Armour to realize a better income margin. Particularly, Under Armor earned a net loss of 1% while Nike realized a net income margin of 12%. Although the companies shared a similar percentage of the cost of revenue expressed over sales, Under Armour incurred sales, general and administration expenses proportionally higher than Nike. In particular, sales, general and administrative expenses were 42% of Under Armour sales. This was 11% more than Nike owing to its cost leadership strategy and commitment to sustainable business innovation that reduces operating cost. The huge variance shows Under Armour lacks a tighter spending policy and possible inefficiency in managing financial resources within its selling, general and administrative functions. The higher percentage of tax to sales in Nike accrues from more sales than Under Armor realizes.

The comparison of inventory management in the two companies shows Under Armour has more inventory days at 138 compared to 94 days of Nike's inventory. Under Armour is experiencing a worsening situation with an increasing days inventory from 117 in 2015, 120 in 2016 to 138 in 2017. Nike shows modest changes in days inventory that increases from 91 days in 2015 to 96 days in 2016 before reducing to 95 days in 2017. It takes Nike less time to sell off its inventory while Under Armour struggles to convert them into sales. Both companies are using first in first out to value their inventory.

In 2017, Nike superiority in the market reflected in generating more net cash operations at $5.739 billion compared to $127 million by Under Armour I the same period. This indicates Nike has done better to generate more cash from operations. Nike is reinvesting its cash manifested in increased working capital by 920 million while Under Armour appears to divest with reduced working capital at 1 million.

Conclusion

Comparing the liquidity of the two companies using the current ratio shows both companies are capable of paying off their short-term obligations from their current assets. The three-year trend shows higher improvement in Nike's current ratio from 2.46 in 2015, to 2.8 in 2016 and 2.93 in 2017 compared to Under Armour's 1.09 in 2015, 1.17 in 2016 to 1.4 in 2017. The trend reveals Nike is holding more cash and cash equivalents, unlike Armour who demonstrates efficient utilization of its working capital. However, none of the companies is headed to bankruptcy.

References

Gregory, L. (2017, February 07). Nike Inc. Generic Strategy & Intensive Growth Strategies. Retrieved May 04, 2018, from http://panmore.com/nike-inc-generic-strategy-intensive-growth-strategies

Nike. (2017). Nike Annual Report 2017. Retrieved May 04, 2018, from https://s1.q4cdn.com/806093406/files/doc_financials/2017/ar/index.html

Under Armour. (2017). Under Armour Annual Report 2017. Retrieved May 04, 2018, from investor.underarmour.com/annuals.cfm

Wong, B. (2018). The 1 Simple Strategy That Under Armour Used to Find Success (It's Better Than What Uber and Google Did). Retrieved May 04, 2018, from https://www.inc.com/brian-wong/the-1-simple-strategy-that-under-armour-used-to-find-success-its-better-than-what-uber-google-did.html