HOW WORKING CAPITAL OPERATES WITHIN UNDER AMOUR 6
HowWorking Operates within Under Amour
HowWorking Capital Operates within Under Amour
Theworking capital of a business is the difference between the value ofcurrent assets and current liabilities. It is the best indicator of acompany’s liquidity soundness. A positive working capital meansthat, the company in question can meet its operating expenses andshort-term liabilities without having to incur further debt. As suchthe company is in a position to exploit growth opportunities. Anegative working capital means that the company’s liquid resourcescannot fully meet operational expenses and short-term liabilities andtherefore, it has to incur further debt to meet them. This essayfocuses on the working capital of UnderAmour, acompany sells sports apparel and accessories using modern innovation.The main focus is to demonstrate how working capital operates incompany.
UnderAmour has a working capital of $1.16 billion. It has the fourthlargest working capital among companies selling sports apparel andaccessories. Like other companies, Under Amour uses its workingcapital to fund its operating activities and investments. Basically,the company has a low long-term debt. Working capital investments inat Under Amour are mostly on receivables and inventories. Oninventory, Under Amour allocates more expenditure from its workingcapital on growth, production, and marketing.
Likemany sportswear companies, the Company has modest growthopportunities in the United States and other countries. There havebeen concerns about volume increases due to the dynamic nature ofconsumer tolerance of price increases and they continue to pay morefor innovative sportswear in their closets. Growth is one of the maintargets of Under Amour‘s financing activities. Internationalmarkets continue to be the Company’s major growth markets.Financing activities in the company’s cash flow also aim todiversify its sports apparel. The company capitalizes itsdistribution as well as brand name recognition channels in creatingseveral lines of sportswear that coordinate with production centersin different operating regions. For instance, the company increasedexpenditures in producing, marketing as well as matching apparel forcoaching fans and staffs have become a major growth avenue.
Operatingactivities funded by Under Amour’s are typically concentrate onsourcing manufacturing representatives that oversee the manufacturingprocess of its sports apparel. The company does not own its ownmanufacturing facilities for sportswear and apparel. Thus, themanufacturing process mainly depends on technical outsourcing, whichtakes a huge proportion of the company’s operating activities. Therepresentatives ensure that quality controls and serve as aconnection between the manufacture and design of company’sproducts. Additionally, Under Amour’s process of manufacturing islabor-intensive, where sewing machines are used as primary equipment.The company has to have a stable and positive working capital so asto keep financing its recurrent operations that revolve around designand production. Design and production is very dynamic in the sportsindustry while quality determines the premium price.
Marketingto retain and increase the market share
Thecompany sells its sportswear products and apparel through variousindependent departments, specialty, and discount stores. The companyspends a lot of dollars to educate retailers through its sales forceon new product innovations, store display design, and othermarketing-related activities. It is worth to note that the sportswearand apparel market is very competitive with big players such as Nikedominating the retail shelves space. Thus, slower growth in sales isimpedes the growth of the company’s market share. Under Amourtherefore working capital is therefore dominated by operatingactivities related to advertising and payments for celebrityendorsements. The company has opened its own retail stores, as wellas factory outlets for discounted sales of excess inventory. Thecompany also spends a lot of dollars in creating a network ofindependent distributor. The main aim is to get more of the profitswhich is generated overseas, thus maintain control of internationalmarketing.
Demandpanning and inventory management
ForUnder Amour, inventory is a risky commitment for capital as it istypical for business models for branded consumer products. Thecompany designs and develops the products it offers the market manymonths in advance. The accuracy with which the company’s managementcan make predicts its seasonal consumer demand and the timing of thepurchase of finished goods from suppliers has a proportional bearingon gross margins, sales, and profitability. For this reason, asignificant portion of Under Amour’s investment activities on itscash flow targets bolstering information systems, supporting salesteams, and streamlining supply chain processes. The company valuescontinued demand efforts that aim to minimize the amount ofinventory.
Oneof the most important ways that Under Amour uses its working capitalis to extend credit facilities to customers by simply making anassessment of their financial soundness without a requirement forcollateral. Additionally, the company offers discounts for customerswho place advance orders for its products.
Workingcapital provides funds for a company to meet its immediateobligations such as every day operations and short-term liabilities.Under Amour’s expenditures that basically thrive from its soundworking capital include: investments in growth opportunities,production, marketing, demand planning, inventory management, andcredit collection. Under Amour’s working capital operationstypically reflects the way sportswear and apparel companies managecash flows.
Macroaxis(2016). UnderArmour Working Capital.Available athttps://www.macroaxis.com/invest/ratio/UA–Working-Capital