Stock Project

Kathy Hone
Business Finance

BUS-225-N1 C. Fetterman Fall 2012

Table of Contents
Section
1":

Executive Summary
Stock Portfolio

Section 2: Under Armour

Company History & Mission Statement CEO Statement

Financial Ratios
Financial Analysis

Section 3: UPS
Company History & Mission Statement CEO Statement Financial Ratios Financial Analysis

Section 4
Income Statement

Final Summary Bibliography

Appendix

Executive Summary
The following pages contain information that was instrumental in my stock portfolio decisions. My companies are Under Armour and UPS (United Parcel Service), two companies at far ends of the spectrum, but that I found intriguing. Included in this portfolio for Under Armour and UPS are financial statements, financial ratios for 2007 through 2011 and analyses of each, CEO summaries, company mission statements, my portfolio contents, and income statement. My original intent was to buy my stocks and sell for a quick, small profit. In order to make a more informed decision, I chose to spend much time and effort online reading and studying beginners investing, financial ratios, how they affected each other and why, what could influence them, what constituted normal parameters, and more. I learned enough to know if I were truly going to invest in stocks I would definitely pay a professional since there are so many variables that can affect a portfolio. Although I chose two companies that ended up having the best year each of them had had since 2007, I decided to hang on to my stock. UPS stock paid better dividends at quarters end, but was trading for a loss from my purchase price.

Stock Portfolio
Disbursement of $50,000 cash for stock investment:

Stocks: 8/27/12 Under Armour- -226 shares at $54.72 ea. UPS - - - - - - - - 500 shares at $75.13 ea. Cost of stock: Scott Trade- - -Commission- - - - -(Expensed on I/S): Total initial investment: $ 12,366.72 37,565.00 $ 49,931.72 14.00 $ 49,945.72

Section 2

Company History
Kevin Plank was a captain on the University of Maryland football team in 1995 when he noticed the cotton T-shirts the team wore under pads were always soaked with sweat. That was the beginning; after graduation, he drove to New Yorks garment district for fabric samples. Working in his grandmothers basement he sewed his first prototypes, gave them to his Maryland teammates and friends that had gone on to play in the NFL. Using their feedback, he went back to work and emerged with a revolutionary microfiber T-shirt that wicked moisture and stayed cool, dry, and light. Now that he had the design, Kevin maxed out his credit cards, $40,000 worth, and set up his company in his grandmothers basement in Washington, DC. One year later Georgia Tech became his first customer; other teams, both Division 1 and NFL, followed them quickly. He soon moved his headquarters to Baltimore and developed his now famous gearlines: HeatGear, ColdGear, and AllSeasonGear. In 2003 the Brand had its first TV commercial introducing a rally cry for athletes that changed the face of sports in three words: PROTECT THIS HOUSE. The rest, as they say, is history. In 2005 they had grown to a company worth $281 million with 600 employees; today Under Armor has added well over $1 billion in net revenues and employ 5,400 people globally.

Mission Statement
To make all athletes better through passion, science, and the relentless pursuit of innovation.

CEO Statement
In his letter to shareholders, Kevin A. Plank, Chairman, Chief Executive Officer, and President of Under Armour stated 2011 showed the strongest growth rate since 2007. Net revenue increased 38 percent, adding over $400 million in net revenue, essentially doubling the size of the business since 2008. When Under Armour went public in 2005, the company had limited international exposure, five Factory House outlet stores, no footwear line, and very few athletes endorsing the products. In May 2011 the first store was opened in China, there are now 80 U.S. stores, some of the greatest athletes of this generation are partnered with Under Armour, the footwear line topped $180 million. Direct-to-Consumer revenues grew by 62 percent and major upgrades to the UA.com e-commerce site were made. Under Armours licensing partner in Japan, Dome Corporation, was given credit for generating $150 million in wholesale product sales. In 2011, Under Armour, known as the thought leaders in the active-use market, moved beyond its core compression heritage that used synthetic materials. By leveraging its brand position, in spring 2011 Under Armour introduced Charged Cotton as a way increase their market to include the larger active-wear market. Fall 2011 saw the introduction of UA Storm, by using the Charged Cotton and making it water resistant Under Armour reinvented the hoody, again increasing the marketplace for the brand. Other 2011 additions to the UA brand were the E39 shirt, a biometric and athletic performance monitor with sensors capable of evaluating and communicating data up to 100 times per second, and in footwear the UA Charge RC. A partnership with Tottenham Hotspur Football Club of the English Premier League in England starts in 2012, bringing 20 million team fans and over 6 billion global league fans.

Under Armour, Inc.

Ratios:
Liquidity: Current Ratio Quick Ratio Activity: Inventory Turnover Average Age of Inventory Average Collection Period Average Payment Period Total Asset Turnover Debt: Debt Ratio Times Interest Earned Profitability: Gross Profit Margin Operating Profit Margin Net Profit Margin Earnings Per Share Return on Total Assets Return on Common Equity Market: Price/Earnings Ratio Market/Book Ratio 38.2 5.84 41.5 5.64 29.7 3.42 30.6 3.60 40.4 7.58 48.40 11.05 6.6 .94 10.5 15.2 49.86 10.56 6.4 .66 10.1 13.7 47.88 9.95 5.5 .46 8.5 11.6 48.67 10.60 5.3 .39 7.8 11.5 50.29 14.22 8.7 .54 13.5 18.7 .31 41.7 .26 48.9 .27 35.5 .32 51.3 .28 108 2.3 159 days 64 days *** 1.6 2.5 146 days 70 days *** 1.6 3.0 122 days 65 days *** 1.6 2.0 183 days 80 days *** 1.5 1.8 203 days 113 days *** 1.6 3.8 2.0 3.7 2.3 3.7 2.5 3.0 1.6 3.4 1.6

2011

2010

2009

2008

2007

*** Information not available

Financial Analysis
Liquidity The Liquidity Category is the way a company measures their ability to pay short-term debt and includes current and quick ratios. Current ratio measures how many dollars a company has to pay short-term debt, using the companys current assets. Quick ratio measures the same but does not include inventory as an asset since it has to sell before it will convert into cash, making it less liquid. Since 2007, Under Armour has maintained a current ratio of 3.0 or above. The 2011 ratio is slightly above industry average at 3.8. This means it has $3.80 to pay every $1 of current debt. Its quick ratio for 2011 is down slightly, but at 2.0 is equal to the industry average. Even without using inventory, the company has $2 to pay every $1 of short-term debt it owes. There does not seem to be any cause for concern in this category.

Activity The Activity Category measures how effective a company uses assets. This group consists of inventory turnover, average age of inventory, average collection period, and total asset turnover. Inventory turnover is a very important ratio as it allows a company to see how successful it has been in managing and selling its inventory, since it indicates how many times per year the company has sold the value of its inventory. Under Armour may need to pay closer attention to this area; their ratios show a decline from 3.0 in 2009 down to 2.3 in 2011. The industry average is 3.6, which means Under Armour is well below average. There could be several reasons for the downward trend, the company is possibly holding too much inventory, is priced to high, the inventory may have become obsolete, or it could be attributed to something positive. Other ratios will need consideration before making an informed decision. Average age of inventory measures how many days, on average, inventory sits on the shelf. Under Armour is experiencing what seems to be uncertainty in this area, down from 121.7 days in 2009 to 158.7 days in 2011. With no industry averages available, I used the inventory turnover average to calculate an average of 101.4 days for the industry. Under Armour is definitely below industry in both of these areas.

Average collection period tells a company how many days it takes to collect its receivable accounts. In this area, Under Armour has had a continuous improvement each year since 2007 with the 2011 average 64 days. When compared to the industry average of 36.1 days it looks like a possible problem, however, Under Armour may have more relaxed credit terms. Since the number of days has improved each year, more information on their credit terms would have to be known before making assumptions. The total asset turnover ratio shows how efficiently a company is using its assets. Under Armour is slightly above the industry average of 1.4 showing a steady five-year ratio of 1.6. This indicates the company is utilizing all of its assets in a positive way to generate sales.

Debt This category is useful for a company to access how much it relies on debt to finance business and includes debt ratio and times interest earned ratio. Debt ratio shows the percentage of debt owed on assets. Since 2007, Under Armour has maintained between .26 and .31, which is below the industry average of .41. It did have an increase of .05 in 2011 that could possibly be explained by the amount of inventory it has. Times interest earned shows how many times the company can pay its interest debt in a year. Under Armour has fluctuated severely in the past five years going from a high in 2007 of 108, to 41.7 in 2011. Industry numbers show the ratio at 21.1, which puts Under Armour well ahead of the industry. There does not really seem to be any reason to worry in this category.

Profitability Most companies would say that this is the most important of all the categories because it shows overall performance and efficiency. Included in this category are gross, operating, and net profit margins, which show the companys sales dollars and profits at various stages. Also included are earnings per share, return on total assets, and return on equity. These ratios show how efficiently the company has turned sales dollars into shareholder profits.

Gross profit margin shows the percent of sales dollars remaining after cost of goods sold have been deducted. Under Armour has had a relatively steady gross profit margin for the past five years remaining between 47.88 and 50.29; this is above the industry average of 46.94. Operating profit margin, also known as EBIT (earnings before interest and taxes) shows the percentage of sales dollars remaining after sales and administrative expenses have been subtracted. The industry average for 2011 was 9.31, below Under Armours 2011 margin of 11.05. Net profit shows the percent of sales left after all expenses, except common stock, have been removed. The 2011 percent for Under Armour is 6.6 representing a 1.1 increase since 2009; however, this is still below the industry average of 8.62. If Under Armour is concerned with this net margin, it could potentially increase profits by reducing costs by producing its products more inexpensively, laying off workers, cutting salaries, or possibly by increasing sales using more effective advertising. While below industry average, Under Armour does not appear to be in imminent danger of going under. Earnings per share (EPS) is probably the ratio shareholders are the most interested in. It represents the value of each share of common stock if the number of shares divided net profits equally. Under Armour has been on an upward trend since 2009, improving from .46 to .94 in 2011. This increase should satisfy most investors. Return on total assets (ROA) measures the efficiency with which a company uses its total assets, (shareholders capital, short and long-term debt) making it the most rigorous and extreme test of return to shareholders. Industry averages for 2011 were 11.7 while Under Armour had a ratio of 10.5; however, since 2008 Under Armours ratio has increased each year showing investors the company is using its total assets to generate profit more efficiently. Return on common equity (ROE) shows how well a company has used investors money. A higher return shows investors the company is capable of generating cash internally. For the most part, the higher a company's ROE compared to its industry, the better. In 2011 Under Armour had a return of 15.2 compared to an industry average of 17.9.While their average is below the industry average, they have shown steady growth over the past four years, increasing from 11.5 in 2008.

Market The market category includes price/earnings (P/E) ratio and market/book (M/B) ratio. Market value ratios tend to communicate investor confidence, or lack thereof, in a company and common stockholders evaluation of past, and expected future performance. Price/Earnings ratio measures the price investors are willing to pay for each dollar of profit the company makes. In 2011, while the industry average was 27.2, Under Armour had a very impressive 38.2. This shows extreme investor confidence since they are willing to pay over $38 for every $1 the company earned. Market/Book ratio measures the difference between the actual (book) value and market value of a share. It is through this ratio a company learns how investors genuinely feel about its performance. Under Armour increased the companys ratio for the third year in a row, coming in at 5.84 above the industry average of 4.99. Investors prefer this number to be high.

While below industry average in several ratios, Under Armour is showing improvement in most categories and does not appear to be in imminent danger. The biggest concern is in the inventory ratio, indicating some attention may be needed here, or possibly new products that were developed this year are stocked anticipating sales. Overall, the stock value is increasing and investors appear to be satisfied.

Company History
In 1907, an enterprising 19-year-old, James E. (Jim) Casey, borrowed $100 from a friend and established the American Messenger Company in Seattle, Washington. Short deliveries were made on foot, longer distances required bicycles since there were very few autos in those days. From an humble office located under the sidewalk, Jim and his partner Claude Ryan ran the service using teenagers as the company's messengers. Despite stiff competition, largely because of Jims strict policies of customer courtesy, reliability, round-the-clock service, and low rates the company did well. UPS, still guided by those policies today, honors Jims slogan: best service and lowest rates. In 1913 the company acquired its first vehicle, a model-T, that was inscribed with its new name, Merchants Parcel Delivery, because of a merger with a competitor and a new focus on package delivery instead of messages. The name United Parcel Service was adopted in 1919 when interstate deliveries started between Seattle and Oakland, CA uniting the states. Today UPS is a multi-billion-dollar global company with one of the most recognized brands in the world. UPS is the worlds largest package delivery company and a leader in providing logistics services and specialized transportation managing the flow of goods, funds, and information in more than 200 countries and territories worldwide.

Mission Statement
Offering excellence, value, and serving the logistic needs of customers, UPS intends to grow its global business while offering employees and business partners opportunities for personal development and success. UPS strives to remain financially strong, continue employee ownership, lead by example, have competitive shareholder returns, and make a difference in the communities they serve.

CEO Summary
According to UPS Chairman and Chief Executive Officer, D. Scott Davis, UPS strategy consists of three key tenets: create value for customers, transform the business, and invest for growth. In 2011, they executed the strategy perfectly with rewarding results, the highest earnings per share in history. One of the new innovative solutions introduced in the United States in October 2011 was UPS My Choice; by the end of the year, new subscribers approached 750,000. New technology programs put in place; keyless entry, telematics, and next generation small/sort, will save over $200,000 million each year. There was heavy investing in healthcare compliant warehouse space, as well as the acquisition of Pieffe, a healthcare distribution company in Italy. International business surpassed expectations, UPS was tops in the business. In 2011, UPS had heavy investing in Brazil, France, Hong Kong, China, South Korea, and Guam. Several direct flights were added, and investments were made for a 70% increase in package sorting capabilities in France. FORTUNE magazine again recognized UPS as worlds most admired transportation company, The Reputation Institute ranked UPS #1 in the industry, University of Michigans American Customer Satisfaction Index (ACSI) ranked UPS #1 in express delivery industry.

United Parcel Service

Ratios
Liquidity: Current Ratio Quick Ratio Activity: Total Asset Turnover Average Collection Period Inventory Turnover Average Age of Inventory Debt: Debt Ratio Times Interest Earned Profitability: Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Total Assets Return on Common Equity Earnings Per Share Market: Price/Earnings Ratio Market/Book Ratio 18.5 10.01 21.5 9.02 29.0 7.47 83.6 8.1 147.0 6.04 24.41 11.45 7.16 11.0 54.1 3.95 24.71 11.39 6.74 9.9 41.8 3.37 23.28 7.74 4.34 6.2 25.8 1.98 42.06 3.14 1.30 2.1 9.7 .66 36.47 1.53 1.00 1.3 4.1 .48 .79 18.4 .76 16.8 .76 8.6 .79 3.7 .69 3.1 1.53 42.9 days 116.3 3.14 days 1.47 41.5 days 116.9 3.12 days 1.42 47.7 days 123.7 2.95 days 1.62 43.9 days *** *** 1.27 57.4 days *** *** 1.9 1.8 1.9 1.9 1.5 1.4 1.1 *** 1.2 ***

2011

2010

2009

2008

2007

*** Necessary information was not included for these years.

Financial Analysis
Liquidity The liquidity category includes Current and Quick ratios. The current ratio measures the companys ability to pay its current debts. UPS has remained at 1.9 for the past two years, which is slightly above the industry average of 1.7. This means UPS has $1.90 to pay every dollar of current debt. Quick ratio is a way for a company to measure its ability to pay current debt without including its inventory. UPS far surpasses the industry average of .4, coming in at 1.8. This means where the industry, on average, would require inventory be sold in order to pay current debt, UPS will still have .80 left over for every dollar of current debt it pays. This category indicates UPS is not heavily invested in inventory. Some companys would need to watch this closely because too much cash can invite takeover bids from other companies. UPS is such a huge corporation; they should be safe from such actions.

Activity Activity ratios are a way for a company to measure how successful its operations are. Included in this category are total asset turnover, average collection period, inventory turnover, and average age of inventory. Total asset turnover measures the efficiency with which a company uses its assets; the total sales dollars it generates for every asset dollar. Industry average is 1.8 while UPS has a slightly lower ratio of 1.53, which still indicates effective use of assets. Average collection period is the measure that lets a company know how long it takes to collect their receivable accounts. UPS has an average of 42.9 days. No solid industry data is listed for this ratio, however; by using other information, I can estimate UPS is slightly better than the industry. Inventory turnover measures how many times the company sells the value of its inventory in a year. Although the industry average is 91.5, UPS has a turnover ratio of 116.3 remaining steady for the past three years. Both of these are solid numbers.

Average age of inventory ratio allows a company to know how long inventory sits around not generating sales. UPS only holds inventory for 3.14 day, the industry average is 3.98 days; both of these numbers indicate this industry does not invest heavily in inventory.

Debt The debt category includes debt ratio and times interest earned. These ratios are also known as solvency ratios because they allow the company to see how well it is managing its long- term debt or how solvent it is. The debt ratio shows how much long-term debt is owed on assets. Once again, UPS shows steady five-year numbers, 2011 they are at .79 while the industry is 1.04. This is definitely a very solid company. Times interest earned measures how many times a company can pay its interest in a year. While UPS has an impressive 18.4, the industry average is 33.3. Although UPS is well under industry average, there is not any reason for concern.

Profitability The profitability category focuses on the companys ability to use its assets and equity to generate profits while effectively managing operations. Ratios included are gross, operating, and net profit margins, earnings per share, returns on total assets and common equity. Gross profit margin shows the percent of sales dollars before deductions other than cost of goods sold. UPS had a couple very good years; in 2007 they were at 36.47 and in 2008 rose to 42.06. Since 2009 the ratio has been close, with 2011s ratio at 24.41. Industry average is 24.77 so UPS is in line. Operating profit margin shows percent of sales dollars left after paying cost of goods sold, selling, and administrative expenses. In 2007 UPS had a ratio of 1.53 which has risen significantly to 11.45 in 2009. With industry average at 9.72, UPS is doing well. Net profit margin is the amount of sales dollars left after all expenses have been removed, with the exception of common stock. As with operating profits, UPS has had significant upward

movement in net profits, going from 1.00 in 2007 up to 7.16 in 2011. Once again, the company is above the industry average of 6.32. Return on total assets shows how efficiently a company is using all the assets at its disposal to generate profit. Industry average in 2011 was 10.7; UPS had another five-year upward swing and ended 2011 at 11.0. Return on common equity shows investors the efficiency with which the company has used their investment dollars. A company that has a high return on equity is more likely capable of generating cash internally; the higher a company's return on equity compared to its industry, the better. In 2011 UPS had a ratio of 54.1, far exceeding the industrys 36.94 ratio. Earnings per share show investors the profit a company makes for every dollar of investment money. UPS investors should be extremely pleased, as the 2011 ratio is 3.95. Once again, UPS has continuously improved over the last five years climbing up from .48 in 2007.

Market The market category measures investors confidence in and common stockholders assessment of a companys performance by using price/earnings (P/E) ratio and market/book (M/B) ratio. The P/E ratio is probably the most known ratio as it is the one used most often to evaluate the price of a stock. Analysts, managers, and investors look at this ratio; it is the one that informs them what investors are willing to pay for each dollar of profit the company makes. The industry had a ratio of 17.8 in 2011; however, UPS topped the industry average with a value of 18.5. That number indicates very strong investor confidence. Market/Book ratio measures the difference between the actual (real book) value and market value of a share. This ratio shows true investor confidence; how they genuinely feel about the companys performance. The M/B ratio for UPS in 2011 was 10.01 well above the industries 6.88 ratio. UPS is showing strong ratios in every category. The investors are showing great confidence, as they should, in the companys performance. UPS has been on an upward movement for the past five years and I see no reason why that should change this year.

Section 4

Income Statement
For My Stock Portfolio

fncome:
Dividends:
Under Armour -(226 shares @.235ea)

....

.....$
......5

53.11

UPS-(500 shares @.9875

ea)...

493.75

Total

Income.

.......S 546.86

Expenses:
Purchase of Stock:

Armour. uPS. Total Expenses

Under

.....$
.....$
.....S

.0A

7.00
14.00

Netlncome.....

...$ 532.86

Final Summary
When I started this project, I knew nothing about stocks and investing. My
husband has the opportunity to

join his company's 401K plan but we have been

extremely hesitant since we lacked knowledge; now we are ready to look at it. The company's I chose ended up being great companies that had record years;
one still lost value in stock price and
steps.

I found that very scary

so we

will take baby

One thing

I learned is if

a person wants quick cash stocks probably are not

where they need to invest. I had every intention at the beginning of this project

of

selling all my stock and making those quick dollars and was very disappointed
when I found out UPS was down from the purchase price, so I decided to hang on

for a while longer. I am going to check where they are at when the semester ends.

I spent

so much time on this project;

am

just relieved it is finished!

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