Under Armour Company Valuation
UnderArmour Company Valuation
UnderArmour Company Valuation
Wheninvesting in a new corporation, it is required that the investor mustconduct a valuation to determine the worth of the business and theability to earn profits. People have different opinions regarding thebusiness value due to variations in economic conditions and desires.Financial evaluation provides information on the possibilities ofbankruptcy and profitability, while the expected return shows thepayback period of the investment. Besides, the management and SWOTanalysis are also important as they demonstrate the company`s abilityto exploit market gaps and succeed in the competitive industry.Therefore, the essay provides the valuation of Under Armour Inc. fora private investor with the intention of investing in the company.
Theassessment process often takes three methods the asset-basedapproach that focuses on the assets and liabilities. The incomeapproach that tests the profitability of the firm in the future, andthe market approach that measures the value of the firm in comparisonto a competitor. Based on the evaluation report, Under Armour Companyhas three major competitors, Nike and Adidas. In comparing therevenue growth rate of the three companies, Under Armour has recordedan increase in revenue growth since 2012. On an average of fiveyears, Under Armour grows at 21.09% while Nike and Adidas at 10.3%and 7.94% respectively (Chandra, 2016). This alone shows that theprivate investor should consider Under Armour since it has the bestgrowth trend.
Onthe same note, Under Armour has experienced varying levels of netincome growth for the past five years, but on average, they stand at22.05% while Nike and Adidas at 12.25% and 13.32% respectively. Thisshows that Under Armour has highest opportunities to expand its netincome and raise the investors` wealth as compared to the other twocompanies. Based on the revenue and income growth averages for thefive years, Under Armour is the best company to invest in due to itshigh growth probability.
Therelative valuation of Under Armour focuses on the comparison of itsfinancial aspects to that of competitors. The variables consideredinclude the gross margin, price-earnings ratio, return on equity,operating margin, enterprise value and the cash ratio. For the pastfour years, the average gross margin for Under Armour is 49%, whileNike and Adidas have 29.5% and 48% respectively. This shows thatUnder Armour is the healthiest financially since it has high salesrevenue after paying for direct costs. Similarly, for the same periodfrom 2013 to 2016, Under Armour has an operating margin of 10.25%,while Nike and Adidas have 13.5% and 7% respectively (Vicente, 2016).The operating margin shows the profitability after deductingoperating expenses and cost of goods sold.
Conclusively,the relative valuation of Under Armour in comparison to Nike Inc. andAdidas shows a general trend that Under Armour is a profitablecompany for the private investor. The company has had the highestaverage revenue and net income growth for the past five years.Similarly, its operating margin shows that it is more profitable thatAdidas, while financially, it is the healthiest with the highestgross margin of 49%. Despite Under Armour being the youngest and holdthe smallest market share after Nike and Adidas, it has the highestgrowth and profitability trend, implying that it shall increase theshareholders` wealth the private investor should invest in UnderArmour.
Chandra,A. (2016). NIKE VS. UNDER ARMOUR: STRATEGY COMPARISON. Aboutthe publishing institution.
Vicente,A. R. (2016). EquityValuation Under Armour(Doctoral dissertation, Universidade Católica Portuguesa).
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