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A Financial Analysis of the Sportswear Company Adidas AG

Hausarbeit 2016 24 Seiten

BWL - Unternehmensforschung, Operations Research

Leseprobe

Table of Contents

Executive Summary

Adidas in Figures and Industry Overview

Financial Ratio Analysis
Profitability Ratios
Efficiency Ratios
Liquidity Ratios
Financing Ratios
Investment Ratios

Review of Adidas’s Position in the Financial Markets

Conclusions and Recommendations

References

List of Abbreviations

Appendix

Executive Summary

This report presents a financial analysis of the sportswear company Adidas by comparing different financial ratios[1] over time and with its most identical competitors. It further reviews Adidas’s position in the financial markets and evaluates returns in relation to the level of risk associated from an investor perspective.

Following are the key findings:

- Despite stable sales Adidas’s financial performance declines considerable in 2014, leaving the company far behind its main rival Nike.
- A comparable high debt level exposes Adidas to increased financial risk.
- Adidas’s dividend yield is the highest in the industry.
- A sharp fall of the EPS in 2014 leads to a significant share price drop.

Figure 1: Set of ratios used for the financial analysis

illustration not visible in this excerpt

Source: own table

Adidas in Figures and Industry Overview

The German company Adidas is the second largest sportswear manufacturer in the world offering a multi-brand portfolio with a wide range of sports lifestyle products (MarketLine 2015).

Figure 2: Key information Adidas AG

illustration not visible in this excerpt

Source: own table, data drawn from MarketLine (2015), Yahoo Finance (2015a)

Nike and Puma are the two most identical competitors in the international market, as being similar in product lines and business model (MarketLine 2015).

Figure 3: Financial performance 2014 in comparison – Adidas, Nike and Puma (EUR in mill)

illustration not visible in this excerpt

Source: own table, data drawn from Thomson One Banker (2015)

Financial Ratio Analysis

Profitability Ratios

The ratios show a favourable trend in profitability for Adidas until 2013, which was the most profitable year, but in 2014 all ratios decline considerably. The ROCE decreased the most indicating a less efficient use of capital (Atrill and McLaney 2015). This derives from a lower EBIT figure and the issuance of two Eurobonds in 2014, doubling the non-current liabilities figure (Adidas Group 2014).

The lower gross and operating profit margins arise from higher cost of sales and operating expenses[2], and negative currency effects (Global Data 2015, Thomson One Banker 2015, Adidas Group 2014). Adidas is currently facing rising production costs in its main sourcing country China and an expansion of its retail activities resulted in increased investments in marketing and fixed assets in 2014[3] (Thomasson 2015, Adidas Group 2014).

Figure 4: Profitability ratios for Adidas from 2010-2014

illustration not visible in this excerpt

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

An alarming signal is Adidas’s downward trend since 2013, whereas both Nike’s and Puma’s profitability ratios show an upward trend. Given the current gross margin, Adidas seems to be able to control its production costs well, but shows less ability in controlling the operating expenses compared to Nike.

Adidas has a considerably lower ROCE than Nike, which means that Nike makes more profit that can be reinvested back to the business and employed at a higher rate of return than the cost of capital, supporting the primary purpose of wealth creation (Atrill and McLaney 2015, McClure 2015a). Moreover, Adidas’s ROTA is only half of Nike’s ROTA, which is less favorable as it shows management inefficiencies in maximizing returns out each Euro of investment (McClure 2015b).

Figure 5: Profitability ratios in comparison – Adidas, Nike and Puma (2010-2014) Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Efficiency Ratios

Adidas generated most sales from its assets in 2013 with the best AUR in the industry. The sharp decrease in 2014 derives mainly from the planned divesture of its Rockport operating segment and an upward revalue of current financial assets[4] (Adidas Group 2014, Thomson One Banker 2015).

Figure 6: Asset utilisation ratios for Adidas 2010-2014

illustration not visible in this excerpt

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Figure 7: Asset utilisation ratios in comparison – Adidas, Nike and Puma (2010-2014)

Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Due to the relatively low level of fixed assets in the industry, Adidas’s efficiency depends to a large extent on its working capital management. Adidas seems to be on a good industry level and a positive signal is that Adidas was able to reduce its stockholding period, but the trend in the collection and payment period is unfavourable (Atrill and McLaney 2015).

Figure 8: Efficiency ratios for Adidas from 2010-2014

illustration not visible in this excerpt

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Figure 9: Efficiency ratios in comparison – Adidas, Nike and Puma (2010-2014) Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Liquidity Ratios

Both ratios present a positive trend in liquidity indicating that Adidas has taken a more conservative management approach to serve its current obligations and funding requirements. However, Nike maintains a higher liquidity than Adidas, which makes Adidas more vulnerable to unexpected downturns of the economy and indicates a riskier strategy (Atrill and McLaney 2015).

Figure 10: Liquidity ratios for Adidas from 2010-2014

illustration not visible in this excerpt

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Figure 11: Liquidity ratios in comparison – Adidas, Nike and Puma (2010-2014)

Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Financing Ratios

Due to the issuance of two Eurobonds Adidas’s gearing increased significantly in 2014, and is above industry average, which exposes Adidas to greater financial risk (Atrill and McLaney 2015, Adidas Group 2014). In general, Adidas’s gearing ratio (22%) doesn’t look too high and the interest cover shows an overall positive trend with a sufficient ‘safety margin’ deriving from lower interest rates[5] (Adidas Group 2014). The prospects for the global sport clothing market are positive, but given Adidas’s relatively poor performance and market share decline in 2014, the capital gearing might become an issue if its performance will further decline or if Adidas wishes further debt financing (PR Newswire 2015, Atrill and McLaney 2015, Euromonitor International 2015a).

Figure 12: Financing ratios for Adidas from 2010-2014

Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Source: own table and calculations based on data drawn from Thomson One Banker (2015)

Figure 13: Financial ratios in comparison – Adidas, Nike and Puma (2010-2014)

Abbildung in dieser Leseprobe nicht enthaltenAbbildung in dieser Leseprobe nicht enthalten

Source: own table and calculation, data drawn from Thomson One Banker (2015)

[...]


[1] A detailed overview with the formulas for the calculations of each ratio can be found in the Appendix figure 21.

[2] as a percentage of sales

[3] The increased investments lead to higher marketing expenses (+7%), a material component of the operating expenses, and higher expenses for depreciation, amortisation and impairment losses (+10%).

[4] The planned divestiture allocated EUR 260m in the current assets classified as assets held for sale. Moreover, current financial assets increased (+118%) due to an increase in the fair value of the financial instruments.

[5] Adidas was able to decrease the company’s average weighted interest rate on gross borrowing from 5.1% in 2010 to 3.1% in 2014.

Details

Seiten
24
Jahr
2016
ISBN (eBook)
9783668170209
ISBN (Buch)
9783668170216
Dateigröße
1.7 MB
Sprache
Englisch
Katalognummer
v317186
Note
82 (Distinction)
Schlagworte
financial analysis sportswear company adidas

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Titel: A Financial Analysis of the Sportswear Company Adidas AG