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you need choose a company then Answer the question, write it like example.

Then answer the example( Lululemon, and UnderArmour)

 

Question:

In a free-market economy, firms face some degree of uncertainty, or risk. Read your companies Risk section in the annual report. Some of this risk is controllable, and some is not. Identify the different types of risk and whether they are controllable from your company example. . How can a business incorporate risk into the decision-making process?

 

 

Example.

Lululemon has 20 risk factors, but I am just going to talk about 5 of them today. 

1.Our success depends on our ability to maintain the value and reputation of our brand.

This is the important risk businesses sometimes don't actaully focus on. They can control this risk and how to keep their brand on top.In 2012 Lululemon was having problems with their sales and their was falling down. They then started focusing again how to fix their brand and basically rebranded a lot of their clothing to get customers again. Which worked because the last 2 year years their sales have gone up a lot.

2.An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products.

This risk they can not control over the situation. Most companies though after the past rescession in 2008, have tried being more cautious of their spending. If all stores sales are fallen and the stock market isn't going as well they just need to be smart with what products are selling and just make mostly what sells.

3. Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.

They can control this risk, by keeping a eye on what products pricing they just rise and what ones they should could the same for sales and profit to stay the same or even rise. 

4. If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity of our business and as a result our brand image and financial performance may suffer.

They can control this situation but looking closely at their numbers every month and if items are selling rapidly then they need to have more employees making the clothing and finding out what are the items selling the quickest.

5. Our fabrics and manufacturing technology are not patented and can be imitated by our competitors.

They can not control this situation. They just have to keep their brand on top and always coming out with new designs before the competitors do. Doing research on what guest will want and buy. 


UnderArmour has 34 distinct different risks listed in the risk section of its annual report. I will examine a few of the bigger ones here.

 

“During a downturn in the economy, consumer purchases of discretionary items are affected, which could materially harm our sales, profitability and financial condition. Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, the availability of consumer credit and consumer confidence in future economic conditions. Uncertainty in global economic conditions continues, and trends in consumer discretionary spending remain unpredictable. However, consumer purchases of discretionary items tend to decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty. A downturn in the economy in markets in which we sell our products may materially harm our sales, profitability and financial condition.”

UnderArmour’s success is very dependent on how the economy as a whole is performing. This risk is mostly uncontrollable. However, UnderArmour could try to manage it by producing items that consumers would buy even when they have less discretionary spending.

 

“Fluctuations in the cost of products could negatively affect our operating results. The fabrics used by our suppliers and manufacturers are made of raw materials including petroleum-based products and cotton. Significant price fluctuations or shortages in petroleum or other raw materials can materially adversely affect our cost of goods sold. In addition, certain of our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate. The cost of transporting our products for distribution and sale is also subject to fluctuation due in large part to the price of oil. Because most of our products are manufactured abroad, our products must be transported by third parties over large geographical distances and an increase in the price of oil can significantly increase costs. Manufacturing delays or unexpected transportation delays can also cause us to rely more heavily on airfreight to achieve timely delivery to our customers, which significantly increases freight costs. Any of these fluctuations may increase our cost of products and have an adverse effect on our profit margins, results of operations and financial condition.”

This risk is also uncontrollable. The only way to manage this risk would be to change the materials used to make UnderArmour’s products. However, this path is very undesirable as it would decrease the quality of UnderArmour’s products and probably cost more money in the long run than it would save.

 

“Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators and negative publicity. The labeling, distribution, importation, marketing and sale of our products are subject to extensive regulation by various federal agencies, including the  Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the  U.S., as well as by various other federal, state, provincial, local and international regulatory authorities in the locations in which our products are distributed or sold. If we fail to comply with those regulations, we could become subject to significant penalties or claims or be required to recall products, which could harm our brand as well as our results of operations or our ability to conduct our business. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and may impair the marketing of our products, resulting in significant loss of net revenues. Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws applicable to our operations. Although we have policies and procedures to address compliance with the FCPA and similar laws, there can be no assurance that all of our employees, agents and other partners will not take actions in violations of our policies. Any such violation could subject us to sanctions or other penalties that could negatively affect our reputation, business and operating results.”

This risk is most definitely controllable. As long as UnderArmour follows all rules and regulations then their risk from this section will be zero. However, if they don’t follow all the rules and regulations then risk will apply, but it will be solely UnderArmour’s fault.



 

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