Marian Park Gray
Chosen Firm: Under Armour, Inc.
Benchmark Firm: VF Corporation

CHART: SUMMARY OF FINANCIAL RATIOS

NARRATIVE
The Current Ratio measures a company’s ability to cover its short-term debt obligations. It is the most commonly used measure of short-term solvency. It is calculated by dividing the Current Assets by Current Liabilities. The Industry Average for 2012 was 4.30. While Under Armour, Inc. is only slightly below the Industry Average, with a Current Ratio of 3.58. It has remained stable over the past 3 years. They are still considered to be a smaller company, so their Current Ratio should be higher than the ‘Rule of Thumb – 2:1.’ VF Corporation is larger than Under Armour, Inc., and the majority of the other companies in this Industry. They do not necessarily need to have the ‘extra’ level of safety to cover unexpected cash needs. So, even though their Current Ratio of 2.00 is well below the Industry average, it is still a good ratio. But, a 2:1 ratio could mean that they have too many short-term assets or too little short-term debt.

The Inventory Turnover Ratio is defined as Sales (or Business Revenue) divided by Inventory. This measures how effectively a firm is managing its assets and whether or not the level of those assets is properly related to the level of operations as measured by sales. It gives us an idea of how quickly inventory ‘turns over.’ The Industry Average for 2012 was 3.80. Under Armour, Inc.’s Inventory Turnover Ratios for the past three years are as follows: 2010 – 4.94, 2011 – 4.54, and 2012 – 5.75. The target ratio should be right at or slightly above the Industry. Under Armour’s Inventory Turnover Ratio is above average, but not quite as good as VF. VF Corporation is one of the most successful in this Industry. So the fact that they have an Inventory Turnover Ratio of 7.95 is not