Under Armour’s Restructuring Deal Analysis Essay Example

1. Liquidity and Solvency 

In my opinion, the short term for Under Armour is good. Under Armour announced over two years ago that it was making plans to restructure to hopefully make future business more profitable.  One of the known charges was going to be a one-time expense on March 31, 2020, for roughly $300 million dollars. The total restructuring charges totaled over $600 million in 2020. The only reason I bring this up in the first question is because this directly affects the Number of Times Interest Charges are Earned in a negative way being -11.98 times. That ratio is the only concerning area in the short term.  Other than that, both the Current and Quick Ratios are strong showing that the company would be able to cover their short-term debts without a problem. The Current Ratio ended up being 2.28 or $2.28 of current assets for every $1 of current liabilities. The Quick Ratio was also impressive being at 1.45 or having $1.45 of easily liquid assets for every $1 of current liabilities. From what I have learned, the quick ratio shows a more accurate view of just how liquid a company is.  The solvency for Under Armour is more concerning to me.  I point most of this to the Fixed Assets to Long term Liability ratio.  It is below 1 at 0.93 meaning it only has $0.93 of long-term assets for every $1 of long-term liabilities. Overall, the liquidity of Under Armour is good, but the solvency is in question with poor fixed asset to long-term liability ratio. 

2. Profitability

The profitability of Under Armour was poor over the year 2020.  Under Armour had a net loss on the year, so that set the company up for poor profitability ratios.  The first that comes up to me is the Rate Earned on Total Assets.  This is at -0.10 or a negative 10%.  Usually there’s discussion whether one positive number is good enough, but in this case, I think it can be agreed that any negative number is a bad thing.  Another ratio that is concerning is their Rate Earned on Stockholder’s Equity which is at -0.29.  This is another example of a negative ratio that should not be.  With a net loss for the year, it is no surprise that their Earnings Per Share is also bad.  At  -1.21 dollars per share, it sums up my opening for this section saying that Under Armour’s profitability was poor for the year. 

3. Significant Items

Under Armour did have a large expense on the year that would not usually happen.  They had various restructuring charges which made their statements look poor for the year.  To start on the vertical balance sheet, Under Armour’s Accumulated Other Comprehensive Income (Loss) under stockholder’s equity portion does have a loss. It’s at -$59,185,000 which I believe could be traced back to their net loss on the year. In their Vertical Income Statement, something that pops out other than their restructuring charges is that their Selling, General, and Administration Expense is over their Gross profit for the year. Before diving into this question, I didn’t notice it, but even without their restructuring charges, they would still be fighting up hill to just break even. There administration expense ended up being over $11,000,000 more than their gross profit. 

The horizontal analysis’s give a better look at Under Armour’s one time deals because they compare the company to past years.  On their income statements, the total revenue dropped 15%. This made their Gross Profit drop by 12.6%.  I speculate that the Coronavirus Pandemic had something to do with this.  The restructuring charge made the biggest item for the Income Statement.  In total, Under Armour spent over $600,000,000 on restructuring. Since this was so big, I looked deeper into it.  This was planned and had been announced. These charges were supposed to between $475 million and $525 million and the company obviously went over. They did this to gear up for future years and be able to be more profitable in the future. Impairment charges were also grouped into this and the one reason for that has to do with a flagship store in New York City. 

In the horizontal balance sheet, a couple things pop up. The first is Under Armour’s cash went up significantly over the year.  The cash and cash equivalents were up 92%.  Long-term debt rose 69.3%. in 2020 as well.  I would imagine that the company put some the restructuring charges into long-term debt.  Intangible Assets also dropped by 63.4%. Intangibles could be patents or trademarks. This could have something to do with their cash increase if they were sold or they could be sold to cover some of the restructuring charges. 

Overall, Under Armour’s restructuring deal that was set in place in 2020 was the most significant item for the company.  At over $600 million for a one-year expense, it found its’ way to affect both the income statement and balance sheet for the year.