What industry are the companies in?
Nike; one of the most well known companies across the globe today is most known for being the world’s #1 shoemaker. They design and sell shoes for a variety of sports including baseball, golf, tennis and football. Nike also sells dress and casual shoes as well as athletic apparel and equipment for almost every sport imaginable. In addition Nike also operates NIKETOWN shoe and sportswear stores, factory outlets along with Nike women shops. One of Nike’s biggest competitors on the rise is Under Armour, Inc. Under Armour; the primary maker of performance athletic underwear and apparel has risen to the top with main competitor Nike. The company has also begun to become a factor in the footwear market as
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One reason that could have something to do with the large differences in income can be found with the way each company accounts for its inventory. Nike, the larger company uses the LIFO method, whereas Under Armour uses the FIFO inventory method. LIFO stands for last-in-first-out, which means that the last costs into inventory go immediately into the cost of goods sold. Under LIFO, the cost of ending inventory is always based on the oldest costs- from beginning inventory plus the early purchases of the period. LIFO is good for large companies such as Nike because it allows for lower income tax payments compared to the other inventory methods. This is because LIFO results in the lowest possible income, which means the lowest possible income tax payments. This is probably the reason why Nike chose the LIFO method for accounting for its inventory. FIFO stands for first-in-first-out, which means that the first costs into inventory are the first costs assigned to cost of goods sold. FIFO on the other hand does not have the same advantages that LIFO does: therefore Under Armour’s income for 2008 was probably higher than what it would have been if they had used the LIFO method. Under Armour paid 53.4% where as Nike paid 33% of their net income towards income taxes. It appears that Under Armour paid millions more in income tax expense over the course of the year with the FIFO than if they had used the LIFO