Submit your order instructions

Get essay writer assigned

Receive your completed paper

Under Armour's success and risk factors

This accounting report addresses the success and risk factors facing Under Armour in the financial period of 2016. Through examination of various online sources properly cited and referenced in APA, the writer established that the focus of the company at this time is to expand its international presence, diversify its product portfolio, and increase revenue generation. The company, therefore, adopted an aggressive risk approach with more focus on long-term growth at the expense of short-term profitability. The company takes advantage of its physical resources to establish regional hubs that will help it achieve its globalization goals. These hubs will help grow the e-commerce sector and increase revenues generated from the direct-to-customer segment. Based on these strategies, it is projected that the company will maintain its annual revenue growth of 27% for the next three financial periods. Assuming other factors remain constant, the company will manage to grow its profitability over these periods.

December 2, 2024

* The sample essays are for browsing purposes only and are not to be submitted as original work to avoid issues with plagiarism.

Under Armour's Success and Risk Factors

Student’s Name

Institution

Course

Professor’s Name

Due Date

Under Armour's Success and Risk Factors

Under Armour's financial strategy in 2016 focused on increasing company revenues

through product diversification and international market penetration (Under Armour, 2016).

This requires heavy investment in marketing, distribution channels, and product innovation,

which might be at the cost of short-term profitability. On the other hand, strategic priorities

were increasing innovations, increasing sponsorships and endorsement deals, and expanding

direct-to-consumer channels such as the e-commerce platform, which is rapidly rising (Under

Armour, 2016). These strategies impact accounting procedures and business decisions in

multiple ways. For example, with the increased focus on global expansion, cost management

might shift from efficiency to scalability to meet the rising demand. Also, focusing on growth

can increase the financial risks if the costs increase at a faster rate than the revenues. The

general impact of a growth mindset on business success is that it will strengthen Under

Armour’s brand but may increase short-term risks such as profitability margin pressure.

However, the firm adopts an aggressive risk approach, often prioritizing long-term success

over short-term gains.

Under Armour can better leverage its physical facilities to increase its visibility and

expand direct-to-customer sales. As of 2016, the company was outsourcing the production

process to third parties in Asian countries, which increased inefficiencies and might lead to

delays. Accordingly, the brand can invest in local distribution hubs to reduce shipping times

by streamlining inventory management. This would result in increased efficiency and reduced

costs, hence higher margins and customer satisfaction. Furthermore, this would help enhance

the direct-to-customer (DTC) segment of the company. In 2016, the DTC segment accounted

for 31% of the revenues, and the company is working to increase this segment, which is its

fastest growing (Under Armour, 2016). According to Business Market Insights (2022), the

Asian market for apparel and sportswear was estimated to increase by a compounded annual

growth rate (CAGR) of 10.25% between 2016 and 2028, creating a huge market potential for

Under Armour. The company should increase its physical stores in large cities like Tokyo to

increase visibility and expand its presence in Asian e-commerce platforms. Using the

physical facilities to increase the DTC segment would result in higher margins for the

company (Kestenbaum, 2020).

The company is currently facing a high risk of production disruption because it

outsources most of the production process to third parties. Dependence on external suppliers

and producers increases the risk of disruption caused by natural disasters, political conflicts,

labor strikes, and global pandemics. This would result in delayed production and loss of

potential sales opportunities. For example, Nike, a direct competitor of Under Armour,

experienced production disruptions in 2014 after workers in one of its contracted companies

in China engaged in a strike (AFP, 2014). Furthermore, such strikes often lead to an increase

in wages, hence an unprecedented increase in production costs. Therefore, moving forward,

the company needs to invest in in-house production to mitigate such risks.

Projections

In the past five years, Under Armour has maintained a CAGR of 27% for revenues

(Under Armour, 2016). It is therefore assumed that the company will maintain this growth in

the next three years, considering its aggressive international expansion, product innovation,

and diversification strategies. Ratio-based forecasting was then used for other items in the

consolidated income statement. For example, the cost of goods sold was 0.536% of revenues

across three periods, 0.377% for expenses, 0.00548% for interest expense, and 0.00057 for

other expenses, as shown in the appendix.

References

AFP. (2014, April 16). Thousands of workers strike at China shoe factory. Capital Business.

https://www.capitalfm.co.ke/business/2014/04/thousands-of-workers-strike-at-china-s

hoe-factory/#google_vignette

Business Market Insights. (2022). Asia Pacific Athleisure Market to 2028 - By Size, Share,

Growth by End User and Forecast| Business Market Insights.

Www.businessmarketinsights.com.

https://www.businessmarketinsights.com/reports/asia-pacific-athleisure-market

Kestenbaum, R. (2020). How Direct-To-Consumer Companies Succeed—And Why Many

Fail. Forbes.

https://www.forbes.com/sites/richardkestenbaum/2020/09/21/how-direct-to-consumer

-companies-succeed-and-why-many-fail/

Under Armour. (2016). 2016 Annual Reports. Underarmour.com.

https://underarmourinc.gcs-web.com/static-files/9801ef64-9915-4b77-af34-03e26689

d3ab

Appendix 1: Projected Income Statement

In Thousands $

2016

2017

2018

2019

Revenue

4825335

6128175

7782783

9884134

Cost of Revenue

2584724

3282599

4168901

5294505

Gross Operating Profit

2240611

2845576

3613881

4589629

Selling, General, and Administrative Expenses

1823140

2315388

2940543

3734489

income from operations

417471

530188.2

673339

855140.5

interest expense Net

-26434

-33571.2

-42635.4

-54147

other expense net

-2755

-3498.85

-4443.54

-5643.3

income before income tax (EBIT)

388282

493118.1

626260

795350.2

December 2, 2024

24/7 custom essay writing by real academic writers

WPH

Academic level:

Undergraduate 3-4

Type of paper:

Report

Discipline:

Accounting

Citation:

APA

Pages:

3 (760 words)

Spacing:

Double