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FINANCIAL STATEMENT
Instructor: Dr. Jonchi Shyu
JUST DO IT
QUICK FACTS of Adidas AG
German multinational company
founded in 1948 by Adi Dassler.
Based in Herzogenaurach,
Bavaria, Germany.
Employing more than 55,555
peoples in over 160 countries.
ALL IN OR NOTHING
The famous swoosh logo was created in On November 17th, 1995, Adidas had its
1971, nine years before the company first initial public offering (IPO).
went public.
The Adidas AG share is listed on the
In 1986, Nike revenues passed $1 billion German stock exchange in Frankfurt.
for the first time. The stock is part of the DAX 30 index,
which consists of the 30 major German
If you had invested $1,000 during Nike's companies.
initial public offering(IPO) without
reinvesting dividends, your investment Number of shares outstanding (as of
would be worth $729,575 today. December 31, 2015) : 200,197,417.
This represents a compound annual
growth rate (CAGR) of just over 20.7%. Average trading volume per trading day
(2015) : 1,199,167 shares.
Your original $1,000 investment would
have yielded almost 87 shares. Adjusted Market capitalization at year-end 2015
for the stock splits, you would hold 5,568 ( in millions) : 18,000.
shares today without dividend
reinvestment.
Source: www.investopedia.com/articles/markets/120315 Source: www.adidas-group.com/en/investors/share
BATTLE OF THE BRAND
Source: www.worldfinance.com/home/a-league-of-their-own-nike-vs-adidas
www.redhotpenny.com/blog/battle-of-the-brands-nike-vs-adidas
THE BATTLE FACTS
1
Theres $ 55 billion USD
at stake. China is the
5
second largest sneaker/ Social Media Wars:
footwear market in the (As of Apr 2014)
world.
3 Facebook Likes
Nike is taking over for Nike - 35.36m
Adidas as the official, Adidas - 17.16m
on-court uniform Twitter Followers
provider in the NBA.
Nike - 1.8m
Adidas - 0.9m
2
Adidas moved its
head of design from 4
Herzogenaurach to Three Nike
Portland. Innovation Kitchen
designers
defected to
Adidas.
RATIO ANALYSIS
1
LIQUIDITY
RATIOS
CURRENT
RATIO The current ratio is mainly used to give an idea of the company's
ability to pay back its liabilities (debt and accounts payable) with
its assets (cash, marketable securities, inventory, accounts
receivable).
3.50
3
2.90 3.00
2.70
2.50
Ratio
Adidas
2
Nike
1.60 1.70
1.50 1.40 1.40
1
0
2011 2012 2013 2014 2015
Year
During 5 years, Adidas has lower current ratio than Nike. It means
Adidas liquidity position to pay its liabilities is weaker than Nike.
Recommendation
Adidas must rise the current ratio by increasing the number of current
assets and reduce the amount of current liabilities of the company.
QUICK
The quick ratio is firms ability to pay off RATIO
short-term obligations without relaying on
the sale of inventories.
Ratio
1.5 1.9 1.8
Adidas
Nike
0.8 1.0 1.1
0.9 0.9 0.8 Industry Average
0.63 0.53
'-
2011 2012 2013 2014 2015
Year
During 5 years, Adidas has lower quick ratio than Nike. Adidas also experienced quick ratio less
than 1 in some years. Its also well noted that Adidas has the lowest quick ratio in 2015. It means
that Adidas doesnt have the liquid assets to pay their current liabilities and should be treated with
caution.
Both Adidas and Nike quick ratio are higher than industry average. It means their liquidity position
is better than other companies.
Recommendation
Adidas must rise the quick ratio by increasing the number of current assets, reduce
inventories, and reduce the amount of current liabilities of the company.
Improve collection efforts in order to optimize capital tied up in account receivable.
Actively manage inventory levels, by continuing monitoring of stock levels as well as
centralizing stock holding and clearance activities, improving forecasting and material
planning processes.
2
ASSETS MANAGEMENT
RATIOS
INVENTORY Inventory turnover ratio showing how
many times a company's inventory is
TURNOVER sold and replaced over a period
RATIO
ADIDAS 7,497
6,435 6,877 6,857 7,347
Sales
NIKE 15,976
11,297 11,531 13,626 13,696
ADIDAS 3,113
2,482 2,486 2,634 2,526
Inventories
NIKE 4,337
2,715 3,350 3,434 3,947
ADIDAS 5,364
4,281 4,374 4,732 4,378
Inventory turnover ratio
NIKE 6,334
3,958 3,865 3,926 5,027
INVENTORY TURNOVER RATIO
8.0
7.7
7.2 7.4
7.0 7.1
6.0
6.0 5.8
Ratio 5.4 5.5 5.4 Adidas
5.24
4.0 Nike
Industry Average
2.0
'-
2011 2012 2013 2014 2015
Year
During 5 years, Adidas has lower inventory turnover ratio than Nike. A lower turnover
implies poorer sales and, therefore, excess inventory. Adidas ratio is slightly above
the industry average, indicating that its inventory turnover ratio at least as internsively
as other firms in the industry.
Recommendation
Adidas must rise the inventory turnover ratio by:
increasing sales (clearance sale)
optimize its inventory (improving forecasting and material planning processes)
A measure of the average number of days that a company
takes to collect revenue after a sale has been made.
DAYS SALES A low DSO number means that it takes a company fewer
OUTSTANDING days to collect its accounts receivable.
A high DSO number shows that a company is selling its
(DSO) product to customers on credit and taking longer to collect
money.
ADIDAS 3,113
2,482 2,486 2,634 2,526
Inventories
NIKE 4,337
2,715 3,350 3,434 3,947
ADIDAS 5,364
Inventory turnover 4,281 4,374 4,732 4,378
ratio
NIKE 6,334
3,958 3,865 3,926 5,027
DSO
60.0 54.90
49.62
44.95 45.09
45.0 48.87 40.05
46.69 45.56 44.21
41.40
Ratio
Adidas
30.0
Nike
15.0
'-
2011 2012 2013 2014 2015
Year
In the last 3 years, Adidas DSO is higher than Nike. It means Adidas has
more and more customers paying their bills very late. This receivables may
end up as bad debts that can never be collected.
Recommendation
Adidas must rise the days sales outstanding by collecting receivables faster.
FIXED ASSET
Financial ratio of net sales to fixed assets.
The fixed-asset turnover ratio measures a TURNOVER
company's ability to generate net sales from
fixed-asset investments - specifically property, RATIO
plant and equipment (PP&E) - net of
depreciation.
Ratio
7.0
ratios in Adidas over the last 5 years
is decreasing (slightly increased in
2015), while Nike trend is increasing. 3.5
It means Adidas effectiveness in
using the investment in fixed assets '-
to generate revenues s decreasing 2011 2012 2013 2014 2015
year by year, while Nike is becoming Year
more effective. Adidas Nike
Recommendation
Adidas must rise the fixed assets turnover ratios
by using their fixed assets more effectively to
generate revenues. It must control their spending
for property, plant and equipment (investments in
the furnishing and fitting of retail stores) since it
became its major investing last year.
The amount of sales or revenues
TOTAL ASSET
generated per dollar of assets. TURNOVER
The Asset Turnover ratio is an indicator
of the efficiency with which a company
RATIO
is deploying its assets.
ADIDAS
6,435 6,877 6,857 7,347 7,497
Sales
NIKE
11,297 11,531 13,626 13,696 15,976
ADIDAS
11,380 11,651 11,599 12,417 13,343
Total assets
NIKE
14,998 15,465 17,584 18,594 21,600
ADIDAS
Total assets 1.2 1.3 1.2 1.2 1.3
turnover
NIKE
1.4 1.6 1.4 1.5 1.4
TOTAL ASSET TURNOVER RATIO
1.64 Adidas has lower total assets
1.7 1.56 turnover ratios than Nike. It
1.44 1.50
1.39 1.42
means Nike is generating more
1.3 revenues per dollar of assets
1.28 1.25 1.27 than Adidas.
1.17 1.17 Both Adidas and Nike total
Ratio
Total Debt Adidas (million EUR) 6,049 6,360 6,118 6,800 7,696
Total Equity Adidas (million EUR) 5,327 5,304 5,489 5,618 5,648
Total Capital Adidas (million EUR) 11,380 11,651 11,599 12,417 13,343
15%
0%
2011 2012 2013 2014 2015 Average
Operating Profit Adidas (million EUR) 1,011 1,185 1,254 883 1,059
143.26
120.00
98.58 Adidas
80.00 89.88 92.98
Nike
71.08
62.10
40.00
12.22 17.18 14.24 16.29 13.86
9.36
0.00
2011 2012 2013 2014 2015 Average
Operating Profit Adidas (million EUR) 1,011 1,185 1,254 883 1,059
Net Sales Adidas (million EUR) 13,344 14,883 14,492 14,534 16,915
9.60% Adidas
8.65%
7.00% 7.58% 7.96% Nike
7.31%
6.26% Industry
6.08%
3.50%
0.00%
2011 2012 2013 2014 2015 Average
Adidas: in average 7.31% earned less by 17.37% from 2011 to 2015 and
below industry average (9.6%)
Nike: 13.36% while Nikes is relatively stable.
Recommendation
Modifying Adidas pricing strategy: possibility of underpricing
Focus on efficiency and Just In Time approach
Apply sig sigma and lean operation management
Profit margin may also indicate certain things about a
companys ability to manage its expenses and pricing strategy
Profit margin is a useful ratio and can help provide insight
about a variety of aspects of a companys
financialperformance.
PROFIT
A higher profit margin indicates a
MARGIN more profitable company that has
better control over its costs compared
to its competitors.
Net income Adidas (million EUR) 672 524 790 490 640
Net Sales Adidas (million EUR) 13,344 14,883 14,492 14,534 16,915
Net income Adidas (million EUR) 672 524 790 490 640
Total Equity Adidas (million EUR) 5,327 5,304 5,489 5,618 5,648
0.00%
2011 2012 2013 2014 2015 Average
Adidas ROE is 11.39% in average and below industry average (21.2%); Nike is 23.2%.
Adidas ROE were unstable (Peak in 2013:14.39% and through in 2014: 8,72%) while
Nike is gradually increasing.
Issues in 2014:
Trend in golf dropped: Taylor Made sales dropped by 29%
Negative profit in Russia from geographical tensions
Weakening currency
Adidas in 2014: What a Disappointing Year!
Recommendation The Motley Fool
Strengthening hedging strategy
Hockey and golf campaign
Political turbulence: employ trend trackers and analyst to be more aware of worlds
situation
RETURN ON Measure of cash-on-cash yield and the
effectiveness of utilizing capital using NOPAT
INVESTED
CAPITAL Company's ability to use capital
efficiently and using it to generate returns.
The higher, the better.
Operating Profit Adidas (million EUR) 1,011 1,185 1,254 883 1,059
Total Asset Adidas (million EUR) 11,380 11,651 11,599 12,417 13,343
Effective Tax Rates Adidas (million EUR) 0.277 0.293 0.29 0.297 0.329
Adidas
8.00%
Nike
7.19% 7.68%
6.42% 6.32%
4.00% 5.00% 5.33%
0.00%
2011 2012 2013 2014 2015 Average
Net income Adidas (million EUR) 672 524 790 490 640
Total Asset Adidas (million EUR) 11,380 11,651 11,599 12,417 13,343
Operating Profit Adidas (million EUR) 1,011 1,185 1,254 883 1,059
Total Asset Adidas (million EUR) 11,380 11,651 11,599 12,417 13,343
Recommendation
Invest more in non-operating activities to earn more revenue
Focus on lean operation management
5
MARKET VALUE
RATIOS
Price/
The ratio of the price per share to earnings
Earnings
per share ; show the dollar amount Ratio
investors will PAY FOR $1 OF CURRENT
EARNINGS.
Ratio
17.81 Adidas
1415.71
Nike
Industry average
7
0
2011 2012 2013 2014 2015
Year
Nike experience the higher Price/Earnings than Adidas. This means that the
investors is willing to spend more money for $1 of earnings with Nike, because of
strong growth prospects and belief that Nike have a higher good performance in
the future.
Recommendation
Adidas should focus on the whole performance of the company which reflect to
the trust of investors and also provide strong long term prospects.
A ratio used to find the value of a company by
comparing the book value of a firm to its market
Market/ value.
M/B ratio typically exceed 1.0, which means
Book Ratio that investors are willing to pay more for
stocks than the accounting book values of
the stock
7.08
6 6.44
Adidas
Ratio
4.90 5.07
4 Nike
4.17
3.54
3.18
2 2.66
1.97 2.09
0
2011 2012 2013 2014 2015
Year
Nike experiences the higher Market/Book Ratio than Nike which shows judgment
or expectation investors against the company. The higher the ratio the company
was seen have a good increasingly prospect. This means that the buyer is willing
to spend extra money, because of high profitability and return on asset.
Recommendation
Adidas should divest less profitable product mix and regions so that it could
enhance its growth and market expectation.
Improve company performance comprehensively, especially its value chain.
6
THE DUPONT
EQUATION
DuPont The DuPont Analysis is a method of performance
Equation measurement which assets are measured at their
gross book value in order to produce a higher ROE
NIKE
Adidas
5.50% especially expenditure for
Nike
5.04% 5.45% marketing investment which is
2.75% 3.52% 3.78% accounted for26% of total
3.37%
operation expense.
0.00%
2011 2012 2013 2014 2015
Year
Total Asset Turnover
1.56
1.6 1.44 1.50
1.39 1.42
0.8
They should decrease inventory Nike
stock and improve their credit
0.4
policy in order to reduce
accounts receivable.
'-
2011 2012 2013 2014 2015
Year
Equity Multiplier
2.4
Adidass ROE goes up due to
2.35 the equity multiplier. This is
2.13 2.12 2.21 simply making things more
1.8 2.02
1.72
risky, if company is getting
1.70 Adidas
Ratio
Where :
T1 = Working Capital/Total Assets
T2 = Retained Earnings/Total Assets
T3 = EBIT/Total Assets
T4 = Market Value of Equity/Total Liabilities
T5 = Sales/Total Assets
Z>2.99 Safe
1.8<Z<2.99 Grey
Z<1.8 Distress
Adidas
2011 2012 2013 2014 2015
Working Capital 2,154.00 2,503.00 2,125.00 2,969.00 2,133.00
Total Assets 11,380.00 11,651.00 11,599.00 12,417.00 13,343.00
T1 0.19 0.21 0.18 0.24 0.16
Retained Earnings 4,348.00 4,454.00 4,959.00 4,839.00 4,874.00
Total Assets 11,380.00 11,651.00 11,599.00 12,417.00 13,343.00
T2 0.38 0.38 0.43 0.39 0.37
EBIT 1,011.00 1,185.00 1,254.00 883.00 1,059.00
Total Assets 11,380.00 11,651.00 11,599.00 12,417.00 13,343.00
T3 0.09 0.10 0.11 0.07 0.08
Market Value of Equity 11,018.00 14,760.08 20,308.54 11,773.49 17,999.98
Total Liabilities 6,049.00 6,360.00 6,118.00 6,800.00 7,696.00
T4 1.82 2.32 3.32 1.73 2.34
Sales 13,344.00 14,883.00 14,492.00 14,534.00 16,915.00
Total Assets 11,380.00 11,651.00 11,599.00 12,417.00 13,343.00
T5 1.17 1.28 1.25 1.17 1.27
Z-score 3.32 3.80 4.42 3.28 3.63
Nike
2011 2012 2013 2014 2015
Working Capital 7,339.00 7,666.00 9,700.00 8,669.00 9,642.00
Total Assets 14,998.00 15,465.00 17,584.00 18,594.00 21,600.00
T1 0.49 0.50 0.55 0.47 0.45
Retained Earnings 5,801.00 5,588.00 5,695.00 4,871.00 4,685.00
Total Assets 14,998.00 15,465.00 17,584.00 18,594.00 21,600.00
T2 0.39 0.36 0.32 0.26 0.22
EBIT 2,844.00 3,025.00 3,272.00 3,544.00 4,205.00
Total Assets 14,998.00 15,465.00 17,584.00 18,594.00 21,600.00
T3 0.19 0.20 0.19 0.19 0.19
Market Value of Equity 41,031.72 50,822.96 56,505.22 69,665.08 89,916.95
Total Liabilities 5,155.00 5,084.00 6,428.00 7,770.00 8,893.00
T4 7.96 10.00 8.79 8.97 10.11
Sales 20,862.00 23,331.00 25,313.00 27,799.00 30,601.00
Total Assets 14,998.00 15,465.00 17,584.00 18,594.00 21,600.00
T5 1.39 1.51 1.44 1.50 1.42
Z-score 7.92 9.25 8.44 8.43 8.96
Both company has Z-score located in the safe zone. However Nike is more considered
safe than Adidas, Nike have strong position especially in Market Value of Equity/Total
liabilities. Moreover, Nike also have customer base which make Nike have high sales and
profitability.
CONCLUSION
RECOMMENDATION FOR ADIDAS TO
INCREASE SHAREHOLDER VALUE :
Optimising their product mix
Rebranding Reebok
Modifying Adidas pricing strategy:
possibility of underpricing
Evaluate third parties contract
especially in credit term, so Adidas can
collect receivables faster
Improving supply chain efficiency and
inventory control
Apply sig sigma and lean
operation management
Focus on efficiency and Just In
Time approach
Improving the quality of
distribution
Focus promotion spend on well-
selected partnership
Find its optimum financial structure
Increase operating efficiency (tightly
managing overhead expenses, curtailing
operational investments, e.g staff hiring).
OVERVIEW OF ADIDAS
- Market capitalizationapproaching $19 billion and trailing 12-month revenues over $16 billion.
- The stock ended 2015 priced around $48 per share and with a price-to-earnings (P/E) ratio just over 8.
- The stock ended 2015 near its 52-week high, which was approximately $50 per share. It also yields a
dividend around 1.8%.
- Adidas has a more established market in European countries.
- Adidas expects to grow its top-line revenue by 15% annually through 2020.
Source: http://www.investopedia.com/articles/markets/012616/adidas-vs-nike-vs-under-armour-which-2016-nkeua.asp
OVERVIEW OF NIKE
- Market capitalization around $102 billion and trailing 12-monthsales over $31 billion.
- Nike ended 2015 priced near $62 per share, which is at the upper end of its 52-week range
of $45 to $68.
- Its P/E ratio is near 24, and it yields dividends of only about 1%.
- Nike is dominant across the globe; in particular, it maintains the largest market share in the
athletic apparel industry in North America.
- Nike's goal is to grow its annual revenues to $50 billion by 2020.
- The company also sees significant growth opportunities in China and in its women-focused
product lines.
COMPETITIVE DYNAMICS
Adidas is entrenched in market segments
domestically and abroad where it has
significant brand loyalty relative to its
competition. However, the company does
not boast quite the same level of high-end
sponsored athletes, which could harm its
Nike is the giant in the industry and perceived values relative to the other two