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Corperate Finance

In: Business and Management

Submitted By lzjadie12
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Members of the board,

As a publicly traded company we have a responsibility to our shareholders to do everything within our power to reward them for investing in us. Investors have experienced so much volatility in domestic equity markets over the past twelve years that we need to make them very comfortable investing in Under Armour. We are still a very young organization compared to a “blue chip” companies like Johnson and Johnson or Proctor and Gamble. It is extremely difficult to gauge just how much investors expect on an annual return from us. Given all the circumstances that go in to making an investment decision for individuals I am going to use the Capital Asset Pricing Method to calculate what type of return we need to generate in order to make our shareholders feel like they made a wise investment.
When trying to accurately value the stock of a company and expected returns there are three common methods of doing so. One method is the dividend growth model. This model tries to “value a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments.” For some investors this could be a reasonable way to try to calculate what type of returns they could expect. With Under Armour, this would not help at all. Currently we do not pay any dividend. We use all the capital and cash we have in order to grow our business. There are numerous companies that entice investors because they pay a quarterly dividend from the revenue they generate. Because we are still a very young company we are not at a comfortable point to pay dividends yet. As we grow and our sales become more consistent we may offer a dividend at some point in the future.
One issue for investors using this method is that it assumes that dividends will be stable. While there are many mature companies that have never missed a dividend payment…...

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