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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Comparative Analysis: Under Armour, Inc., versus Columbia Sportswear

Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com.

Required:

Calculate Under Armour’s and Columbia’s gross profit margin for 2015 and 2016. ( Note: Round answers to two decimal places.) What can you infer about the strategy pursued by these two companies based on these measures, assuming the industry average is around 31.7%?

To determine

Concept introduction:

Profitability ratios:

Sales is very important for any business and a company’s growth and its future is determined by the sales revenue it has generated. Therefore analysts measure the return the company is earning on sales through some ratios and these are called as profitability ratios. The three important profitability ratios are gross profit margin ratio, operating margin ratio and net profit margin ratio.

Calculate gross profit margin for 2015 and 2016 of Under Armour and Columbia Sportswear. Comment these measures as against assuming industry average as 31.7%.

Explanation

The net sales and gross profit income of Under Armour has been taken from the Cengagebrain.com website. The net sales of Under Armour for 2015 and 2016 is 3963313000 and 4825335000 respectively. The gross profitincome of Under Armour for 2015 and 2016 is 1905547000 and 2240611000 respectively. Now thegross profitmargin is calculated using the following formula:

Gross profit margin for 2015

= gross profit / Net sales

= 1905547000 / 3963313000 = 48.08%

Gross profitmargin for 2016

= gross profit / Net sales

= 2240611000/4825335000 = 46.43%

The net sales and gross profit income of ColumbiaSportswear has been taken from the Cengagebrain.com website. The net sales of ColumbiaSportswearfor 2015 and 2016 is 2326180000 and 2377045000 respectively. The gross profit income of ColumbiaSportswearfor 2015 and 2016 is 1073500000 and 1110348000 respectively...

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