Under Armour's Investment Strategy: Equity Method Insights

Under Armour's Return on Equity (ROE) is a useful metric for investors to assess the company's profitability and management effectiveness. The ROE metric indicates how efficiently Under Armour utilises investments to generate income, with a higher ROE generally being more favourable. While Under Armour's ROE of 5.2% is lower than the industry average, it is important to consider other factors such as debt levels and growth prospects. The company's debt-to-equity ratio is relatively low, and it has a solid balance sheet with ample liquidity. Under Armour's focus on elevating its products, pricing, supply chain, and marketing may lead to improving results in the coming years.

Under Armour's Return on Equity (ROE)

ROE is calculated using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity. Under Armour's ROE as of January 31, 2020, was 5.2%, based on the previous 12 months. This means that for every $1 worth of equity in the company, it earned $0.05.

ROE can be used to compare different companies within the same industry. However, it should be noted that companies can differ significantly within the same industry classification. As of January 31, 2020, Under Armour's ROE was lower than the average (11%) in the Luxury industry classification.

While a high ROE is generally favourable, it is important to consider other factors such as debt levels and profit growth rates. As of January 31, 2020, Under Armour's debt levels were not considered too high, indicating decent prospects for the business.

It is worth noting that ROE should not be the only efficiency indicator used by investors, as it can be high if a company is heavily leveraged. A desirable ROE typically falls between 10% and 30%, allowing companies to provide dividends to owners and have funds for future growth.

ROE and profitability

Return on Equity (ROE) is a measure of a company's financial performance and profitability. It is calculated by dividing net income by shareholders' equity. ROE is expressed as a percentage and can be calculated for any company if net income and equity are both positive numbers. A higher ROE indicates that a company is more efficient at generating income and growth from its equity financing.

Under Armour's Return on Equity is 5.2%, based on the last twelve months. This is lower than the average ROE in the Luxury industry classification, which is 11%. A good ROE will depend on the company's industry and competitors.

ROE is a useful indicator of a business's ability to generate profits and return them to shareholders. It is one of many metrics that investors can use to evaluate a company's performance, potential growth, and financial stability.

ROE and the Luxury industry

Return on Equity (ROE) is a critical financial metric that measures a company's ability to generate profits from equity investments. It is calculated by dividing net income by average shareholder equity and is used by investors to assess a company's profitability, efficiency, and future growth potential.

Under Armour's ROE of 5.2% is lower than the average in the luxury industry classification, which is 11%. This indicates that the company may not be utilising shareholder investments as effectively as its peers. However, it's important to note that ROE is just one metric and that other factors, such as debt levels and industry-specific characteristics, should also be considered when evaluating a company's performance.

The luxury industry, including sectors such as apparel, footwear, and accessories, typically exhibits a wide range of ROE values. This variation is due to factors such as industry-specific earnings, growth prospects, and management's outlook on future performance. For example, industries with high profit margins, like technology and pharmaceuticals, tend to have higher ROEs due to their low capital requirements and high-profit margins. In contrast, industries with high capital expenditures, such as utilities and transportation, often have lower ROEs.

When evaluating ROE in the luxury industry, it's crucial to consider factors such as profit margins, asset turnover, and financial leverage. A company's ROE can be influenced by its financial strategy, with some companies employing debt financing to boost their ROE by increasing net income through investments funded by borrowed money. However, this approach increases financial risk and volatility.

In summary, while Under Armour's ROE is lower than the industry average, it's important to analyse other financial metrics and industry benchmarks to make informed investment decisions. ROE is sensitive to leverage, and a high ROE could be due to excessive debt, which may not be sustainable in the long term. Therefore, investors should consider ROE in conjunction with other indicators to assess a company's true financial health and growth prospects.

Under Armour's debt and ROE

Under Armour's Return on Equity (ROE) is a useful ratio for analysing the company's profitability and management effectiveness. It indicates how much profit the company generates for every dollar of shareholder equity. The formula for ROE is:

ROE = Net Profit / Shareholder's Equity

Under Armour's ROE was 5.2% as of January 31, 2020, based on the trailing twelve months to September 2019. This means that for every $1 worth of equity in the company, it earned $0.05 in profit. This is lower than the average ROE of 11-12% in the Luxury industry classification.

While a higher ROE is generally preferable, it's important to consider that companies with high ROEs may be heavily leveraged. In the case of Under Armour, its debt to equity ratio of 0.27 is relatively low, indicating that its ROE is not artificially inflated by high debt levels. This suggests that the company has decent prospects, and the judicious use of debt could potentially improve returns.

Under Armour's Total Stockholder Equity is projected to increase significantly based on recent reporting. The latest financial disclosure shows that the company has a negative ROE of -0.0436, which is significantly lower than the industry and sector averages.

Under Armour's ESG sustainability

Products

Under Armour is embracing material innovations that will enable less waste and more durability, setting the stage for circular systems by 2030. The company is prioritizing recycled and renewable materials and reducing single-use plastic brand product packaging by 75% by 2025. They are also implementing sustainability and circular design principles in at least half of their products by 2027 and developing a circular footwear program to be launched in the market, at scale, by 2030.

Home Field

Under Armour is working to reduce its overall environmental footprint and protect the planet through several initiatives. They aim to eliminate 100% of biocides and fluorine DWR in their products by 2025 and reduce absolute scope 1, 2, and 3 greenhouse gas emissions by 30% while increasing renewable energy in owned and operated facilities to 100% by 2030. They are also committed to advancing low-impact manufacturing, reducing the environmental impact of their materials, and targeting net-zero emissions by 2050.

Team

Under Armour is supporting its people and communities through several initiatives that build upon their longstanding efforts. They are investing in teammates' health, safety, and well-being, including through programs to advance diversity, equity, and inclusion, and develop underrepresented talent at all levels. They are also protecting workers' human rights and well-being in their supply chain through comprehensive programs and audits. Additionally, they are working to create opportunities for millions of youth to engage in sports by 2030.

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