A Financial Analysis of the Sports Manufacturer ADIDAS

Table of Content

Abstract

AFinancial Analysis of the Sports manufacturer “ADIDAS” The ten financial Ratios

Calculation the ratios for Adidas AG

Comparison of the Ratios to other companies Sponsorship contracts

Current Media Reports Conclusion

References

Abstract

The present study includes a financial analysis of the sports goods manufacturer Adidas Group AG and its subsidiaries. This is important to understand the further course of the work, which falls under all Adidas Group AG. The main feature of this paper is to calculate the ten different financial ratios and evaluate them. For this a comparison of the key corporate figures and secondly, a comparison with companies from the same industry is made. The following is an overview of sponsor contracts in the company and current status in the sport industry. The result of the analysis shows that this sporting goods manufacturer is indeed represented worldwide, but mainly in Europe and should therefore invest more in the American market.

A Financial Analysis of the Sports manufacturer “ADIDAS”

“We are laser-focused on our mission: we strive to be the global leader in the sporting goods industry with brands built on a passion for sports and a sporting lifestyle!” (Cited from Adidas Group, n.d.). This statement from Herbert Hainer, CEO of the Adidas Group shows the attitude of the organization. Adidas was founded in 1949 by Adi Dassler in Germany. In the beginning the name was “Adi Dassler adidas Sportschuhfabrik” and the company only produced shoes. In time, the company developed and produced products other than shoes. Furthermore, other sports companies were included in the company, so that the name changed to “Adidas Group AG” (Adidas Group, n.d a). At the beginning, the company was a little family company, but today the Adidas Group produces 650 million sports products, every year in over 160 countries. More than 50,700 people help to generate sales of 14.5 billion euro (2013). The headquarters of the company is in Herzogenaurach in Germany. The motto of the company is to “keep things simple, lean and fast”, and focuses on things that make the athlete better. Today the Adidas Group consist of four different sport companies: Adidas, Taylor Made, Reebok and Rockport. All these companies are focused on different sports. The brand Adidas focuses on four areas:

1. Adidas Sport performances: This part focuses on innovation and technology in all kinds of sport.
2. Adidas Originals: focuses on streets wear
3. Adidas sport style: exclusive collection with women’s footwear, apparel and accessories for chic events.
4. Five ten: focuses on shoe wear for adrenalin sports, e.g. rock climbing

Reebok has two areas they focuses on:

1. Fit for life: this is a fitness brand, which creates all clothes to use for fitness
2. Reebok CCM-Hockey: create outfits for ice hockey players

Taylormade-Adidas Golf includes Taylor Made, TaylorMade driver, Adams and Ashworth. All Taylormade brands are focused on the golf area. The last company is Rockport, which focuses on fashion shoes to wear every day. For the success of the company they work permanent on the five areas: marketing, product development, design, sourcing and supply chain management to create new ideas and use new technologies and developments. All these factors have helped the company to become known worldwide and to sell products they’re worldwide too (Adidas Group, n.d.).

The ten financial Ratios

To get an overview of the financial situation of the company, the following ten financial ratios were calculated and the results were analyzed. To make a statement about the calculation of the ratio, a comparison is necessary because the result on its own is just a number without a statement. There are five kinds of ratios.

Liquidity ratio

1. Current ratio: this ratio compares the current assets with the current liabilities by dividing the current assets by current liabilities. A high current ratio is better than a low one because that means that the company has money left, which they can use to service debt. The company uses this ratio if it wants to take on short-term debt.

2. Quick ratio: The only difference to the current ratio is that the inventory is not included in the current assets. The inventory is not included because if the company needs cash it can take to long to get the money out of the inventory. So the formula is (current Assets - Inventory) / current liabilities. Like the current ratio for the quick ratio counts, the higher the value the better.

Asset Management ratio

1. Total asset turnover ratio: It shows how efficient the company uses its assets to make money. The higher the ratio the better it is, because it shows that the company generates more revenues per dollar of assets. For this ratio it is important to compare companies in the same sector, because it varies in different industries. It can be calculated by dividing net sales by average total assets.

2. Inventory turnover ratio: It shows how many times the inventory of the company is sold and replaced over a specific period. It can be calculated by dividing the cost of goods sold by an average inventory. For this ratio too, the higher the better it is can be used, because a low turnover is a sign that the products stayed in the warehouse and were not sold.

Leverage Ratios

1. Debt ratio: It is calculated by dividing total liabilities by total assets. The interpretation of the ratio is which proportion of the assets are financed by debt and the result is given in percentage. For this ratio counts the lower the result the better, because the higher the ratio is the greater the financial risk.

2. Interest coverage ratio: The interest coverage ratio tells how well the company is able to meet its interests. The higher the interest coverage ratio is, the easier can the interests be fed from operative business generated results. The formula is: Earning before interest and taxes (EBIT) / interest expenses.

Profitability Ratios

1. Net profit margin: This ratio measures how much the company keeps in earnings out of its sales. The result is given in percentage and a higher result indicates a good control of the company’s costs, because it makes the company more profitable. It is calculated by dividing the net income by sales/ revenues.

2. Return on equity: This ratio shows the amount of net income, which is returned as shareholders’ equity. That means how much profit the company generates with the money from shareholders. The result is given in percentage, the higher the result the better it is and the formula is: Net Income / Shareholder’s Equity.

Market Value Ratios

1. Market value: It shows the price for an asset in the marketplace. The market value is calculated by multiplying the number of its outstanding shares by the current share price and public-traded companies use it. The higher the result the better because it means that the value of the company is higher.

2. Price-to-earning ratio: The ratio compares the relationship between the stock price and the company’s earnings by dividing the price per share of a common stock by earnings per share. The result shows what the market would pay for the company’s earnings, what means the higher the value the better because the market would pay more (Brown; Rascher; Nagel; McEvoy, 2010).

Calculation the ratios for Adidas AG

In this chapter the ten ratios, which were presented in the chapter before, will be calculated for the Adidas Group AG. To view the development of the company the ratios were calculated with numbers from 2014 and with numbers from the year 2013. The numbers were chosen from the financial report of the company for the third quarters and the numbers are shown in US dollars. The annual statement for the company is at December 31 every year. To use the most actual data, the numbers from the quarter 3 were used, which ended at September 30.

Table 1: Values for the Ratios of Adidas Group AG 2014 and 2013 in million US$

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Sources:

The result of the comparison from the values of 2013 and 2014 shows that the company had a negative development during this period of time, because the results are better, expect by the debt ratio and total asset turnover ratio. For this two ratio the numbers from 2014 are better. But all in all if the two years (with a view of the quarter 3) were compared to each other, it shows that the company did a better job in 2013. In this part the ratios were only compared with numbers from the same company, so that it cannot be said how the place from the company is in a competitor comparison. But for example the result of the market value shows, that the value of the company felt about 3 billions of US$ in the last year, because the price for one stock was falling down by around $14.

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^[1] (Adidas AG, 2014)

^[2] (Adidas AG, 2013)

^[3] (yahoo finance 2014)

^[4] (yahoo finance 2014 a )

^[5] (yahoo finance 2014)