Question

In: Accounting

Dec. 31, 2015 Dec. 31, 2014 Assets Cash and cash equivalents 129,852 593,175 Accounts receivable, net...

Dec. 31, 2015 Dec. 31, 2014
Assets
Cash and cash equivalents 129,852 593,175
Accounts receivable, net 433,638 279,835
Inventories 783,031 536,714
Prepaid expenses and other current assets 152,242 87,177
Deferred income taxes 52,498
Total current assets 1,498,763 1,549,399
Property and equipment, net 538,531 305,564
Goodwill 585,181 123,256
Intangible assets, net 75,686 26,230
Deferred income taxes 92,157 33,570
Other long-term assets 78,582 57,064
Total assets 2,868,900 2,095,083
Liabilities and Stockholders Equity
Accounts payable 200,460 210,432
Accrued expenses 192,935 147,681
Current maturities of long term-debt 42,000 28,951
Other current liabilities 43,415 34,563
Total current liabilities 478,810 421,627
Long-term debt, net of current maturities 352,000 255,250
Long-term line of credit, noncurrent 275,000 0
Other long-term liabilities 94,868 67,906
Total liabilities 1,200,678 744,783
Stockholders' equity
Additional paid-in capital 636,630 508,350
Retained earnings 1,076,533 856,687
Accumulated other comprehensive loss -45,013 -14,808
Total stockholders' equity 1,668,150 1,350,229
Total liabilities and stockholders' equity 2,868,828 2,095,012
Under Armour Inc.
Consolidated Statement of Income
Dec. 31, 2015
Net Revenues 3,963,313
Cost of goods sold 2,057,766
Gross profit 1,905,547
Selling, general and administrative expenses 1,497,000
Income from operations 408,547
Interest expense, net -14,628
Other expense, net -7,234
Income before income taxes 386,685
Provision for income taxes 154,112
Net income 232,573

A) Compute its financial leverage (FLEV), Spread, and noncontrolling interest (NCI) ratio for 2015. Recall that NNE = NOPAT - Net income

B) Assume that its return on equity (ROA) for 2015 is 38.95% and its return on net operating assets (RNOA) is 26.58%. Confirm computations to yield the relation: ROE = [RNOA + (FLEV x Spread)] x NCI ratio

C) What do your computations of the nonoperating return imply about the company's use of borrowed funds?

Solutions

Expert Solution

Financial Leverage (FLEV) = Earnings before Interest and Tax (EBIT ) / Earning s before Tax(EBT) – ( Preference Dividend(PD) / 1 – Tax rate)

                                                = (408547 – 7234 ) / 386685 – 0

= 1.038

Spread is the difference between the ask rate and bid rate of the security.

  • Non Controlling Interest is also known as Minority Interest which is recorded in the equity section of the parent’s company balance sheet.

b) Return on Equity ( ROE) = Net Income / Shareholders EQUITY *100

Non operating return is the return from the portion of the organization’s income that is derived from activities not related to its core business operations.


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