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The Financial Reporting Project

In our research, weas the group members were in a better position to understand ourobjectives for the financial project assigned. In addition to that,the purpose of this project was to enable us to develop a basicunderstanding of our selected company and the business premises itoperates. The Annual Report of the enterprise alongside the otherside based information and resources assisted us in the wholeresearch process, hence completing the project successfully.Primarily, the comprehension of this project is question-based,provided with adequate precise answers. Consequently, we havearranged the information included here in a logical manner with anumber of sub-headings that clearly illustrate our research course ofaction.

Chiefly, theprincipal business venture of UNDER ARMOUR, INC. is the ‘development,marketing and distribution of already branded performance apparel,footwear and accessories for men, women and youth.’ Ourmoisture-wicking fabrications are tailored to various designs. Thegarments are suitable for almost every climate. Hence, they offer acompetitive replacement for traditional wear. The products are soldglobally and worn at least by every athlete at distinctive levels.Consumers with ‘active lifestyles’ have a share of the company’sassortments. The wide client base all over the globe generates thenet revenues from wholesale sales. North America is the largestconsumer of its goods. ‘Virtually all of our products aremanufactured by unaffiliated dealers operating majorly in 19countries outside of the USA.’

CompanyBackground

Question A

Theticker symbol Under Armour, Inc. is a UA logo. The companystock exchange(s) are stock traded on the New York Stock Exchange.Additionally, the Class A Common Stock is traded on the New YorkStock Exchange, abbreviated as NYSE under the ticker symbol.

Figure1.The UA ticker symbol-logo

Basedon the company’s records from the Annual Report or the 10-k, datingJanuary 14th,2014, they identified a total of 1104 Class ACommon Stockholders. The CEO and Board Chairman own the other Class BConvertible Common Stock that has only five holders.

QuestionB

Theauditing firm utilized by this company is PricewaterhouseCoopersLLP, an autonomous registered public accounting firm. Hence,ensuring the sufficiency of the internal control over financialreporting is well maintained. The auditor’s annual report hadseveral points to note down. In their own derived opinion, in allmaterial respects, the financial stand of Under Armour, Inc. and itsside companies as of December 31, 2013 and December 31, 2012, and theoperations outcome and their cash flows for every year in the periodended December 31, 2013 in similarity with accounting valuesgenerally tolerated in the US. The company’s management isresponsible for its financial statements and financial statementschedule the efficient maintenance of internal control overfinancial reporting and its evaluation of the usefulness of internalcontrol over financial reporting. The auditing firm conducted theaudits in reliance on the standards of the Public Company AccountingOversight Board (US). The auditing firm has the responsibility tofreely and willingly express their opinions on these financialstatements, financial statement schedule, company’s internalcontrol over financial reporting based on the integrated audits. Theauditing of financial statements includes:

  1. Examining.

  2. Test basis.

  3. Proof for sustaining the amounts and disclosure in the financial statements.

  4. Assessing the accounting principles used and significant estimates made by management.

  5. Evaluating the overall financial statement presentation.

The purpose of thisauditing is to obtain a reasonable assurance about whether thefinancial statements of this company are free of materialmisstatements and if adequate control over financial reporting wasmaintained in all aspects. However, because of its inbuiltrestrictions, internal control over financial reporting may notprevent or detect misstatements. Furthermore, expectations of anyevaluation of effectiveness to future periods are subject to the riskthat controls may become insufficient since changes in conditions mayexist and also that the extent of conformity with the policies orprocedures may deteriorate.

Question C

AtUnder Armour, Inc. the fundamental operations are:

  1. Development – For any company to grow and spread there must be a development process. Step by step procedure to ensure that they achieve longevity, stability, and credibility, in the long run.

  2. Marketing – After the ultimate development of goods, the finished products are exposed to the outside consumer world. It is in this process that they look at the client target. The company’s employs various intriguing audio-visual information to convince potential customers to relate with their businesses ideas.

  3. Brand distribution – Perhaps the last stage of all is the distributions of products to a wide base of clients. This process ensures profit realization as well as pleasing the customer’s needs.

Inour choice of companies, several goods are sold, for instance:

  • Apparel

  • Footwear

  • And other accessories for all sexes and youths.

Themajor competition comes from established companies, new competitivecompanies. Competition may also arise from the possession of alimited process patent and fabric originality. A number of ourcompetitors have a massive market and full recognition as compared tous.

Our company hasdiverse strategies to capture the market. We apparel in a stylevariety with the motive of comfort, mobility, body temperatureregulation and performance boosting in any weather type. Hence, weoffer three kinds of gear lines merchandise that are:

  • Cold gear – Designed to wick moisture from the body by heat circulation from hot spots to maintain core body temperature. It provides warmth and dryness.

  • Warm gear – Worn when temperatures are warm to help the body to remain fresh and light.

  • All season gear – Worn in extreme temperature conditions.

Question D

According to the sources from Yahoo Finance, the closing price forthe Wednesday 31, 2014 was only $67.90.

Developments relating to the company

QuestionA

AtUnder Armour, Inc., the demands of products have significantly andrapidly increased since its inception

  • Ability to develop and introduce new products and update existing products depending on the consumer preference.

  • Ability to comply with regulations in the trade industry.

  • Ability to expand their business worldwide and to push for brand awareness and product acceptance by the consumers in other countries.

QuestionB

Thecompany has experienced fluctuations in the costs of products thatnegatively affect their operating results. The raw material used bytheir suppliers to manufacture fabrics and cotton and petroleum-basedgoods. Shortages and fluctuations in petroleum or the other rawmaterials have adversely affected the costs of merchandise sold. Theoil price change has also affected the transportation of theproducts.

Duringa downturn in the economy or the condition of the market adverselyaffect the consumer spending and the financial health of theircustomers, this harms the company sales, financial condition, andprofitability.

Incometaxes are subjected to the company in the US and many foreignauthorities. Changes in tax laws, valuation of tax assets andliability and deferring tax rates in different countries adverselyaffects their income tax rate and profitability.

Thecompany engages in personal collection of data, utilize informationtechnology and embrace digital marketing and also have an in-storepayment processing system that has increased effectiveness.

QuestionC

Thecompany should regularly assess the matters about income tax todetermine the adequacy of the tax provision.

Theyshould extend credits to their clients based on an evaluation of theclient’s financial condition without requiring collateral.

Understanding the Annual Report and 10K

Question1

Ina simple case, we take the sales net revenue for the currentyear 2013 (based on the Annual Report) as $2,332,051 million inanother instance we take the sales net revenue for the year 2102 as$1,834,921 million. In a comparison analysis, the clear indication isthat there has been a sharp, steady increase in the net salesrevenue. On the other hand, the net income (earnings) for thecurrent year 2013 was $162,330 relative to that of 2012 that was$128,778. Therefore, a net income increase for every progressive yearhas been noted.

In a betterunderstanding of the revenue generation concept, we take the annualgrowth rate for both the sales revenue and the net income.

  • Sales revenue

Annual growth rate from 2011-2012 is calculated as

2011-$1,472,684

2012-$1,834,921

× 100 = 24.60%

Annual growth rate from 2012-2013 is computed as

2012-$1,834,921

2013-$2,332,051

× 100 = 27.09%

The annual growthrate in sales revenue is increasing steadily. A few factors may causethis increase significant growth in customer base and satisfactionfrom the range of the company’s products.

  • Net income(earnings)

Annual growth rate for the year

2009-$46,785

2010-$68,477

× 100 = 46.37%

Annual growth rate for the year

2010-$68,477

2011-$96,919

× 100 = 41.54%

Annual growth rate for the year

2011-$96,919

2012-$128,778

× 100 = 32.87%

Annual growth rate for the year

2012-$128,778

2013-$162,330

× 100 = 26.05%

According to theannual growth rate above, there is a slow increase in the net incomepercentage. The net income is increasing at a slow rate that is lesssignificant than the previous years. Several factors may lead to theobservation above a slowly growing customer target, competition fromother rival companies and perhaps unsatisfactory services rendered bythe enterprise.

Question 2

Thegross margin percentage for each period in the income statement ofthe company is calculated as follows:

Grossmargin percentage =

2009- = 8.7661

2010-= 7.7472

2011-= 7.3550

2012-= 6.8280

2013-= 7.0022

Following thisobservation, the gross margin percentage decreases in most of theyears in question. Fundamentally, it was due to new running stylesand growth. Another cause for the decrease is the impact of thehigher inbound freight, maybe due to supply chain challenges, formeeting the customer’s expectations. Such factors have led to thedecrease in the gross margin percentage.

However, the companyhas expanding margin percentage in that the decrease was moderatelyoffset by an increase in basis points driven by lower North AmericanApparel product input costs. Also, it was incompletely compensatedby higher North American accessories and footwear inputs.

Question 3

Theresources of our company are employed in current assets andliabilities and stockholders’ equity as seen on the balance sheet.As of December 31, 2013 the percentage of the total assets for eachasset displayed in the balance sheet is calculated as follows:

  • Cash and cash equivalents = 30.7836%

  • Accounts receivable, net = 18.5993%

  • Inventories 41.1549%

  • Prepaid expense and other current assets 6.1035%

  • Deferred income taxes 3.3998%

The Total Currentassets for the above computation is $.Consequently, the total percentage for all assets is 30.7836 +18.5993 + 41.1549 + 6.1035 + 3.3998 = 100.04%. Hence, it equals thetotal percentage expected which is logically 100%. According to the

Informationabove, the three largest assets as a percentage of the total are:

  1. Inventories.

  2. Cash and cash equivalents.

  3. Accounts receivable, net.

Inventories compriseof finished goods. The market value of such products is a crucialaspect in the dealing process. As a result, if the market value isfavorable then the inventories would attract a better revenueproduction. Cash and cash equivalents generate interest income as ameans of revenue production.

Question 4

Thedepreciation method employed by our company is the ‘straight-line’method over the approximated useful lives of the assets. The companyuses the same method of depreciation for almost all types oflong-lived assets. This information was found in the Annual ReportTable of Contents (Long-lived assets).

Question5

Ourcompany uses a few methods in its inventory valuation. We make use ofstandards costs that may estimate landed cost, after applying thefirst-in, first-out determination method for cost. The marketvalue is using assumptions made about future demands and retailmarket scenarios. In the event of less favorable market conditions,realistic adjustments are tailored to increase the cost of goodspre-determined at the particular projection analysis time.

Inventory turnovermeasures how quick our company turns its inventory within aparticular year. To compute the ratio, we need an average inventorycalculated from the last three years 2013, 2012, 2011. Hence, theratio is:

469,006 + 319,286 +324,409 = $1,112,701.

Divided by 3:

=370,900.3333

With the informationabove, we also need the cost of goods for the last two years 2013 and2012.

  • Cost of goods sold in 2013 is $1,195,381.

Hencethe inventory turn-over ratio is = 3.2

  • Cost of goods sold in 2012 is $955,624.

Hencethe inventory turn-over ratio is = 2.5

Thetrend observed is an increase in the inventory turn-over ratio. Ahigher inventory turnover tells us that the company has a ‘lightinventory’. Thus, it’s expenditure on storage is less.

Question6

Inexamining the financial structure of Under Armour, Inc. we calculatedthe amount of total liabilities and stockholder’s equity as apercentage of the total assets.

Currentliabilities:

Revolvingcredit facility 23.4395%

Accountspayable38.7820%

Accruedexpenses 31.3454%

Currentmaturities for long-term debt 1.1654%

Othercurrent liabilities5.2676%

Thetotal percentage is 23.4395 + 38.7820 + 31.3454 + 1.1654 +5.2676= 100.000004% as of December 31st 2013.

The primary sourceof funding for assets is the Cash and cash equivalents standingat $347,489 in 2013 from $341,841 in 2012. The conclusion drawn fromthis concept is the interest expense and income generation.

Question 7

The major componentsof stockholders’ equity are:

  1. Revolving credit facility.

  2. Accounts payable.

  3. Accrued expenses.

TheAccounts payable resulted into major changes that had anincrement effect, in that in the year 2012 there was $85,077. Theincrement noticed was to $133,729 in the year 2013. It was aconsiderable change as compared to other types of accounts. TheCurrent maturities of long-term debt had the major decreaseeffect $9,132 in 2012 to $4,972 in 2013.

Question8

The10K provides some important information to interested parties,including the stockholder, which is not found in the Annual Report.Some of the additional detailed items contained in a SEC filing maybe of interest to a potential party. In view of that, such items ofinterest are:

  • Marketing and Promotion – The SEC filing enables us to check on the company’s performance in the market, either on the local or global scene. We are fed with the information about how the company’s products are tailored to meet the consumer’s needs and satisfaction.

  • Intellectual property – The chief logo for Under Armour, Inc. is the AU logo. Legally registered in the USA, European Union, Mexico among other countries. ARE YOU FROM HERE is another side-based trademark for this company. We hold copyrights and commercials, and strongly condemn on the infringing of our rights and patent rights both locally or worldwide.

WorkCited

‘’FORM10-K Annual Report.’’ UNDER ARMOUR, INC. 2013. SEC Filing.Web. 18 February. 2015.

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