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* Asset turnover measures sales volume in relation to the investment in assets. We calculate asset turnover as sales divided by average (not ending) total assets. Under Armour’s asset turnover is 1.7. Under Armour generates $1.70 in sales for every dollar it invests in assets. Nike’s asset turnover is just slightly lower at 1.6. Note that a small difference in asset turnover can have a large impact on return on assets. By generating an asset turnover of 1.7 compared to Nike’s 1.6, Under Armour obtains a return on assets of 15.8% compared to Nike’s 14.5%. * Return on equity measures the income earned for each dollar in stockholders’ equity. Return on equity relates net income to the investment made by owners of the business. The ratio is calculated by dividing net income by average stockholders’ equity. Under Armour has a return on equity of 21.4%. Net income is 21.4 cents for every dollar invested. Nike has an even higher return on equity of 22.4%. Why does Under Armour have a higher return on assets, while Nike has a higher return on equity? The answer relates to financial leverage—the amount of debt each company carries. Recall that Nike has a higher debt to equity ratio. Remember, too, that debt can be good for the company as long as the return on investment exceeds the interest cost of borrowing. Both Under Armour and Nike enjoy returns well in excess of the interest cost on borrowed funds. Nike’s investors are leveraging these excess returns by carrying a larger portion of debt. By carrying greater debt, Nike is able to provide a higher return on equity in relationship to its return on assets, further benefiting the company owners. * Price-earnings ratio compares a company’s share price with its earnings per share. The P/E ratio is an indication of investor’s expectations of future earnings for the company. At the end of 2006, Under Armour’s closing stock price is $50.45 and they report earnings per share for 2006 of $0.87. This results in a P/E rat