Comparing Two Companies in the Same Industry: Under Armour & Columbia Sportswear
ID: 2488456 • Letter: C
Question
Comparing Two Companies in the Same Industry: Under Armour & Columbia Sportswear. Refer to the income statements for Under Armour & Columbia Sportswear.
Under Armour: http://cvg.cengagenow.com/ilrn/books/pnal09h/swf/appb.pdf
Columbia: http://cvg.cengagenow.com/ilrn/books/pnal09h/swf/appc.pdf
1. Which is the largest expense for each company in the most recent year? NOTE: choose between A-E for both companies
Under Armour: _____
Columbia Sportswear: _____
A. Cost of goods sold
B. Depreciation expense
C. Interest expense
D. Income taxes
E. Selling expenses
2. What is its dollar amount? Enter your answers in thousand. For example, "200,400,000" would be entered as "200,400".
Under Armour: $_____
Columbia Sportswear: $_____
3. Is it logical that this would be the largest expense given the nature of each company's business? Yes or No…
4. One of the accounts on each company's income statement is "Selling, general & administrative expenses." For each of the two most recent years, compute the ratio of this expense to net sales for each company. (Under Armour calls this ‘‘Net revenues’’). NOTE: If required, round your answers to one decimal place.
Most recent year
Under Armour: _____%
Columbia Sportswear: _____%
Prior year
Under Armour: _____%
Columbia Sportswear: _____%
5. Did this ratio INCREASE or DECREASE from one year to the next?
Under Armour: _____
Columbia Sportswear: _____
6. Which company has the lower ratio in each of the two years? Under Armour or Columbia Sportswear…
7. Compute the ratio of income taxes to income (earnings) before taxes (Under Armour uses the term ‘‘Provision for income taxes’’) for the two most recent years for each company. If required, round your answers to one decimal place.
Most recent year
Under Armour: _____%
Columbia Sportswear: _____%
Prior year
Under Armour: _____%
Columbia Sportswear: _____%
8. Is the ratio the same for Under Armour for both years? Yes or No…
9. Is the ratio the same for Columbia Sportswear for both years? Yes or No…
10. Which company has the higher ratio for each of the two years? Under Armour or Columbia Sportswear…
Explanation / Answer
1. Which is the largest expense for each company in the most recent year?
For both companies the largest expenditure is COST OF GOODS SOLD. However, in the Income Statement it is stated as Cost of Sales, therefore, please note that there is no difference in cost of goods sold and cost of sales. The only difference would have arisen if incase cost of sales also included selling expenses, but since its given separately in the income statement it is assumed that there is no difference in the two terms.
2. What is its dollar amount?
Armour = $ 759848
Columbia = $ 958677
3. Is it logical that this would be the largest expense given the nature of each company's business?
Yes
4. One of the accounts on each company's income statement is "Selling, general & administrative expenses." For each of the two most recent years, compute the ratio of this expense to net sales for each company.
Armour = 2011 = 550069/1472684 = 37.35% or 37.4%
2010 = 418152/1063927 = 39.30% or 39.3%
Columbia = 2011 = 614658 / 1693985 = 36.28% or 36.3%
2010 = 534068 / 1483524 = 36%
5. Did this ratio INCREASE or DECREASE from one year to the next?
Armour = Yes, Increase
Columbia = Yes, decrease
6. Which company has the lower ratio in each of the two years?
Columbia
7. Compute the ratio of income taxes to income (earnings) before taxes (Under Armour uses the term ‘‘Provision for income taxes’’) for the two most recent years for each company.
ARMOUR
2011 = 59943 / 156862 = 38.21% or 38.2% 2010 = 40442 / 108919 = 37.13% or 37.1%
COLUMBIA
2011 = 34201 / 137680 =24.84% or 24.8% 2010 = 27854 / 104891 = 26.56% or 26.6%
8. Is the ratio the same for Under Armour for both years?
No
9. Is the ratio the same for Columbia Sportswear for both years?
No
10. Which company has the higher ratio for each of the two years?
Armour
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