adidas
Table of Contents
Introduction
1.1
Purpose of Report
------------------------------------------------------------------------- 3
1.2
Company Profile ---------------------------------------------------------------------------
3
1.3 Overview of Adidas’ Mission, Vision and Values
------------------------------------ 4
1.4 Subsidiary Companies ---------------------------------------------------------------------
4
Financial Economic
Performance
2.1 Profitability Analysis ----------------------------------------------------------------------
5
2.2 Profitability Ratios -------------------------------------------------------------------------
6
2.3 Efficiency Analysis -------------------------------------------------------------------------
7
2.4 Liquidity Analysis
-------------------------------------------------------------------------- 7
2.5 Marketing Performance Analysis -------------------------------------------------------
8
2.6 Adidas’ Profitability Ratio VS Nike Profitability Ratio
------------------------------ 8
Social Performance
3.1 Community Involvement Program ------------------------------------------------------
9
3.2 Developing Fair Wages For Our Supply
Chain ---------------------------------------- 9
3.3 Protecting Vulnerable Groups Within
Supply Chain --------------------------------- 9
3.4 Fair Play ---------------------------------------------------------------------------------------
9
3.5 Supporting Refugees in Syria and Northern
Iraq ------------------------------------- 9
Environmental Performance
4.1 No water, Less energy, Fewer Chemical ----------------------------------------------
10
4.2 Recycled Polyester -----------------------------------------------------------------------
10
4.3 Chemical Management -------------------------------------------------------------------10
4.4 Recycling Shoes ---------------------------------------------------------------------------
10
4.5 Grey Water Recycling --------------------------------------------------------------------
11
Conclusion
5. Conclusion -----------------------------------------------------------------------------------
11
Reference List
6. List of Reference ----------------------------------------------------------------------------
12
Appendix
7. Appendix 1
-----------------------------------------------------------------------------------
12
1. Introduction
1.1. Purpose of Report
The purpose of this report is to evaluate the company’s overall
performance and make an evaluation out of its investment study.
The sequence of the report will be as followed:
·
Introduction of the Company,
Adidas Group
·
Financial economic performance
·
Social Performance
·
Environmental Performance
·
Conclusion
·
Recommendation
This report analysis will include report summary and provide a
perspective in terms of financial investment and recommendation.
1.2 Company Profile
Founded in 1924, Adidas has grown to become one of the world’s tops
leading sportswear. It was formerly called Dasslr Brothers Shoe Factory when
Adolf Dassier’s older brother, Rudolf Dassier joined the business. The company
was then registered as Adidas in 1949 due to a family dispute as it turns out
that Rudolf Dassier’s company, Puma has became a business rival of Adidas.
With its headquarter located in Herzogenaurach, Bavaria, it has
become the largest sportswear manufacturer in the whole of Europe and is
current the second largest in the world. The company manufactures sports shoes,
apparels and accessories. Adidas currently has more than 53,00 employees
worldwide and has a staggering market cap of $25.2 billion (according to
Forbes).
1.3 Overview of Adidas’ Mission, Vision and Values
Mission
Adidas strives to be the world’s leading sports apparel industry
while creating enthusiasm, committing to building passion for the its consumers
providing an active and sporting lifestyle.
Vision
·
To gradually progress in their
competitive position by establishing a trustworthy reputation while improving
on branding and products
·
Consumer oriented by providing
excellent service in order to satisfy customers’ needs and going to distance to
surpass client’s expectation
·
Committed to delivering
remarkable financial results
·
To be both socially and
environmentally responsible by playing a part in maintaining sustainability
while embracing diversity and creativity
Values
·
Performance – to deliver
outstanding quality products for their consumers
·
Integrity – ensure ethical
behavior and honesty in their conduct
·
Diversity – encouraging
creativity and new perspective to excel
·
Motivation – self development
and improving on oneself to be better
1.4 Subsidiary Companies
·
TaylorMade – Adidas Golf
Company
Located in Carlsbad, Calfornia, the company
is specialized in producing golf equipment such as golf balls, putters etc.
They also carry golf related apparels, footwear and accessories. Today, it is
currently the largest golf equipment manufacturing company in the world with an
estimated sales of € 1.3 billion back in 2012,
·
Reebok
Founded in 1895 by J.W. Foster and Sons in
Bolton, Lancashire, Reebok has been operated by Adidas as a subsidiary since
2005. The company is specialized in manufacturing and distributing sports
related product such as footwear, workout apparels and training gears. They are
also the official sponsor for Spartan Race, CrossFit, UFC and Les Mills
Adidas
2.
Financial/Economic Performance
|
Financial
Position - Adidas
|
||
|
General
Financial Information
|
Financial
Year:
2014
|
Financial
Year:
2013
|
|
Balance
Sheet
|
||
|
Total
Assets
Total
Liabilities
Total
Owners’ Equity
|
€(In
Millions)
12,417
6,800
5,624
|
€(In
Millions)
11,599
6,118
5,489
|
|
Financial
Statement
|
||
|
(Basic)
Profit earned/shared (EPS)
Dividends
received by Shareholders (DPS)
Total
Ordinary Shares Issued
|
(Cents)
2.72
1.50
Number
208,776,457
|
(Cents)
4.01
1.50
Number
209,216,186
|
|
Cash
Flow Statement
|
||
|
Net
Cash Flow from Operating Activities
Net
Cash Flow from Investing Activities
Net
Cash Flow from Financing Activities
|
€(In
Millions)
701
(537)
(118)
|
€(In
Millions)
634
(243)
(439)
|
Table 2.1 Adidas’s basic
financial information outline
We will be discussing and comparing the financial results of 2014
and of 2013. An analysis will be in comparison between Adidas’ 2014 and Nike of
the same period. To further evaluate the financial results, a financial
analysis on profitability ratios, efficiency ratios, liquidity ratios and
marketing performance ratios will be discussed.
2.1 Profitability Analysis
Measures the income generating ability of the business
The financial figures shown above are acquired from Adidas’ Annual
Report 2014. By comparing the year 2014 to 2013, it shows that there has been
increase in terms of their total assets, total liabilities as well as total owners’
equity by €818 Million (↑7.05% increment), €682 Million (↑11.14%) and €135 Million (↑2.46%) respectively.
2.2
Profitability Ratios
|
Profitability
Ratios - Adidas
|
|||
|
Return
On Equity (ROE)
Return
On Assets (ROA)
Gross
Profit Margin
|
Year
2014
8.7%
7.0%
47.6%
|
Year
2013
14.3%
9.6%
49.3%
|
Difference
↓5.6%
↓2.6%
↓1.7%
|
|
ROE
figures taken from Adidas’ 2014 Annual Report Page 3
|
|||
Table 2.2 Adidas’
Profitability Ratio
Table 2.2 indicates the profitability ratio of Adidas, it includes ROE,
ROA and Gross Profit Margin.
Return on equity (ROE) is the measurement of profitability within a
business attained by the company’s managers on capitals dedicated by shareholders.
By looking at the statistics shown above, there has been a decrease of 5.6%
from year 2013 to 2014, this indicates that shareholders are suffering a loss
and the company is less profitable in 2014 in comparison to 2013.
Return on assets (ROA) sometimes known as Return on Investment (ROI)
is an indicator, showing how profitable the company in relation to its total
assets. From 2013 to 2014, it indicates a decrement of 2.6%. This suggest that
the company is investing high volume of capital in return to generate low
amount of revenue, this however is not very effective as they are not getting
the fullest out of their investment.
Gross Profit Margin is defined as the money
left after accounting for cost of goods sold. Comparing the year 2013 to 2014,
it shows a decrease in net profit of 2.1% from 7.8% to 5.7% while reducing in
gross profit margin being 1.7% from 49.3% to 47.6.
In summary, the reason why there is a
decrease of sales is due to the decrement of consumers purchasing golf-related
products. Another reason could be due to higher operating expenses which in
return reduces the profits that the company is making. In terms of Adidas’
profitability performance, year 2013 would indicate a better performance
result.
2.3 Efficiency Analysis
Indicates how
efficient can the managers carry out the business operation
|
Efficiency
Ratios – Adidas
|
|||
|
|
Year
2014
|
Year
2013
|
Difference
|
|
Days
Inventory Ratio
Days
Debtors Ratio
Asset
Turnover Ratio
|
124
days
47
days
1.2
times
|
130
days
45
days
1.2
times
|
↓6 days
↑2 days
-
|
Table 2.3 Adidas’ Efficiency
Ratios
Table 2.3 represents the efficiency ratios of Adidas which includes
inventory, day debtors as well as asset turnover period. Refer to Appendix 1
for calculation.
Days inventory ratio refers to the average period of time to turn
company’s inventory into sales. As you can see, there is a decrease of 6 days
in comparison between year 2014 to 2013. This shows that Adidas is slightly
more efficient and took a shorter duration to sell of their shares in 2014.
Days debtors ratio measures the duration taken to collect money from
debtors. By looking at the table above, you can see that there has been an
increment of 2 days from 45 days (2013) to 47 days (2014). This shows that
Adidas took a slightly longer period in collecting money from its debtors in
2014.
Asset turnover ratio represents the efficiency of a company of
turning assets into generating sales revenue. As indicated in the table, the
company manages to generate a sale of $1.20 for each dollar invested in both
2013 and 2014.
As I have previously mentioned, Adidas was affected by the decrease
of consumers in the golf related product sector. In return, they have came up
with promotions and offering sales so as to clear off their stocks in bulk thus
achieving a shorter time span to sell off their products to generate revenue
even though they took a longer period to collect their debts back.
2.4
Liquidity Analysis
Indications of how quickly the company
converts assets into cash to repay debts
|
Liquidity
Ratios – Adidas
|
|||
|
|
Year
2014
|
Year
2013
|
Difference
|
|
Current
Ratio
Quick
Asset Ratio
|
1.7
times
1.1
times
|
1.4
times
0.9
times
|
↑0.3 times
↑0.2 times
|
Table 2.4 Adidas’ Liquidity
Ratios
Table 1.4 represents the liquidity ratios of Adidas which consists
of current ratio and quick asset ratio. Refer to Appendix 1 for calculation.
Current ratio measures the company’s capability of liquidating
assets to pay off long term and short term debts, quick asset ratio indicates
its ability to short tern liquidity. In this case it shows that there is an
increment of both ratios implying that Adidas is in a good position of
liquidating assets to meet short term liabilities.
2.5
Marketing Performance Analysis
Measures
the level of appeal why investors should invest in the company
|
Marketing
Analysis – Adidas
|
|||
|
|
Year
2014
|
Year
2013
|
Difference
|
|
Price
Earnings Ratio
Dividends
Payout Ratio
|
21.2
times
53.9%
|
23.1
times
37.4%
|
↓1.9 times
↑16.5%
|
|
Figures
obtained from Adidas’ 2014 Annual Report Page 260
|
|||
Table 2.5 Adidas’ Marketing
Performance Analysis
PE ratio represents the value of the company’s share price,
indicating whether if their shares is over or underpriced while dividends
payout ratio means the amount of dividends paid to the shareholders in relative
to the net amount of the company.
The table suggests that investor are less willing to pay a higher
amount in return to purchase more shares from Adidas in 2014 while the
dividends payout has an increment of 16.5% in comparison between 2013 to 2014.
2.6 Adidas’
Profitability Ratio vs Nike Profitability Ratio
|
Profitability
Ratios
|
|||
|
|
Adidas
2014
|
Nike
2014
|
Difference
|
|
Return
On Equity (ROE)
Return
On Assets (ROA)
Gross
Profit Margin
|
*8.7%
**7.0%
47.6%
|
24.6%
**14.9%
44.8%
|
15.9%
7.9%
2.8%
|
|
*ROE
figures taken from Adidas’ 2014 Annual Report Page 3
**ROE
and ROA figures are taken from Nike’ 2014 Annual Report Page 19
|
|||
Table 2.6 Adidas Profitability
Ratio VS Nike’ Profitability Ratio
Table 2.6 represents the profitability ratio
of Adidas’ 2014 and Nike’ 2014. Refer to Appendix 1 for calculations.
As shown above, for the year 2014 Nike has
proven to be more profitable in terms of financial based on their ROE, ROA and
gross profit margin reported hence suggesting that Nike obtained a heftier
profit than Adidas. Thus in 2014, Nike achieved better financial performance in
the year 2014.
3.
Social Performance
3.1 Community Involvement Program
The Adidas group has organized community
involvement program to develop its employees by planning meaningful and
purposeful trips outside of its workplace so as to add values and gain more
exposure to the world for them. The volunteering involvement for programs
creates a new perspective in terms of friendship and even life itself. This
also enhances soft skill such as communication, leadership, teamwork and
strengthens team dynamics.
3.2 Developing Fair Wages For Our Supply
Chain
The definition of fair wage means paying
employees a sufficient amount in order for them to pay for their basic needs. By
developing a respect-protect-promote framework, this has enable Adidas to further
play a part in supporting wage progression. On top of that, Adidas is looking
for more companies to collaborate with so as to raise awareness regarding fair
wages across its industry.
3.3 Protecting Vulnerable Groups Within
Supply Chain
Within an organization, there are bound to be
certain groups that are being treated differently due to their social status
and financial position, hence Adidas has been keeping a lookout for them by
safeguarding the rights of migrant workers, women and children. There are cases
whereby employment agencies collaborated with middlemen to take advantage of
such groups and Adidas will intervene to ensure proper and equal treatment are
in place.
3.4 Fair Play
By inculcating integrity as one of its core
values, this has ensured that the employees are to be responsible and fair while
performing tasks assigned to them. Adidas has supported this campaign by
launching a training plan which helps all employees to have a better
understanding to the group’s ethical requirements, this in return has aid
Adidas in building a trustable reputation.
3.5 Supporting Refugees in Syria and
Northern Iraq
In order to aid the refugees there, the
Adidas group has provided footwear and clothing with the help of charity
organization Wings of Help. Wings of help aids people in times of crisis by
acting as a safety net in order to alleviate their financial crisis. The Adidas
group has contributed more than 100,000 items and making cash donation so as to
support the refugees.
4. Environmental
performance
4.1 No water, Less energy, Fewer Chemical
In 2014, Adidas managed to save as much as a 100 million liters of
water by using the Adidas DryDye. It is a process whereby products are being
water-free dyed so as to converse the use of water, energy and chemical.
The scarcity of water is currently a worldwide-recognized problem.
According to research, 40% of the world’s population is suffering from severe
water shortages. Conventionally, it takes about 25 liters of water to dye a
t-shirt however dry dyeing doesn’t consume any water at all.
4.2 Recycled Polyester
Instead of virgin polyester which is made from petroleum, Adidas
chose to use recycled polyester as they are made from recycled material such as
used clothing and plastic bottles which then will be processed into fibres.
This has tremendously reduced the amount of petroleum being used
allowing less waste to be discharged and reduces the amount of polyester ending
up in the incinerators. This further reduces toxic emissions, decreases energy
and prevents polyester from filling up the land.
4.3 Chemical Management
Adidas has been practicing chemical management in its company for
nearly two decades. 90% of the products produced by Adidas are PFC-free. PFC is
a powerful greenhouse gas emitted during the production of aluminum called
perfluorinated compounds. This is usually used to make sportswear dirt and
water resistance.
The company had also partnered with bluesign technologies, one of
the world’s leading providers of assessment tools for positive chemistry in the
textile industry, to bring sustainable solutions to the next level. On top of
that, Adidas has conducted several experiments in hope of finding new
alternatives such as water repellency performance to further reduce the use of
PFCs.
4.4 Recycling Shoes
In order to conserve materials so as reduce the wastage of
resources, the Adidas group started the “Take back and recycle” program. The
objective of the program is to turn used footwear into a resource, which
generates energy for the local industry. Consumers are able to leave wore
sports shoes in the designated containers of Adidas stores to receive a
discounted price on the purchase on a new pair of Adidas shoes. Shoes which are
being donated will then be recycled to produce local energy.
Currently there are more than 60 Adidas outlets in Brazil that are
supporting this campaign and the customers are responding positively to it. They
reported that it felt great donating their belongings, as they know they will
be treated as recycled resources instead of waste. The items were then distributed
to either organizations that support microenterprises in developing countries,
individuals who are less fortunate or be recycled.
4.5 Grey Water Recycling
Adidas contributed environmentally by collaborating with its textile
manufacturer, Far Eastern New Centuary (FENC) in Taiwan to adopt grey water
recycling. The definition of ‘Grey water’ means used water that is being recycled.
By making a comparison between year 2014 to 2013, the company managed to reduce
its water usage by 12%. A resource such as water is limited so everyone should
play a part in conserving the usage by using it responsibly.
This is a purifying process whereby both high and low polluted water
undergo filtration and chemical treatment. The high pollution water will then
be further processed to remove harmful elements before discharging safely to
the environment. Whereas for the low pollution water is used for cleaning of
tanks and dark color reduction cleansing.
5. Conclusion
In summary, I would recommend you to consider investing in Adidas
because of its financial portfolio. Adidas has shown an increment of its total
assets and equity in terms of its financial statement. They have the ability of
selling off their shares in a quicker turn to generate equity and are in a good
position of liquidating assets in order to repay short term liabilities and on
top of that, they are giving out a good dividends payout to its consumers.
Adidas has play a part sustaining
both socially and environmentally. They have planned purposeful and meaningful trips to
add values for its employees and to show them a different perspective out of
their workplace while allowing them to gain more exposure to the world. They
have been supporting fair wages for its employees in order to sustain their
basic lifestyle, protect the vulnerable groups within the society such as
migrant workers, women and children. By inculcating integrity as one of their
core values, the employees are to be responsible when carrying out their jobs and
even aid refugees in Syria and Iraq by making donation.
Adidas
turn to DryDye and grey water recycling as a solutions of conversing our
precious resources, they have opt for recycled polyester in order to cut down
the consumption of the material and to reduce pollution. 90% of the products
produced by Adidas are PFC free. They have campaigns like the ‘Take back and
recycle’ and ‘Usage of DryDye’ to help in sustaining the environment.
6.
Reference List
Adidas 2014, Annual Report
Adidas 2014, Sustainability Report
Adidas 2015, Annual Report
Nike 2014, Annual Report
Wikipedia, Adidas Group
7.
Appendix 1
*All calculations result will be rounded
off to the nearest 1 decimal point
·
Formula for Return on Assets
(ROA)
ROA = Net
Income / Average Total Assets x 100%
|
Company
|
Year 2014
|
Year 2013
|
|
Adidas
|
6,924 / 14,534 x 100%
≈ 47.6%
|
7,001 / 14,204 x 100%
≈ 49.3%
|
·
Formula for Gross Profit Margin
Gross Profit Margin =
Gross Profit / Sales x 100%
|
Company
|
Year 2014
|
Year 2013
|
|
Adidas
|
6,924 / 14,534 x 100%
≈
47.6%
|
7,001 / 14,204 x 100%
≈
49.3%
|
|
Nike
|
12,446 / 14,534 x 100%
≈
44.8%
|
|
·
Formula for Asset Turnover
Ratio
Asset Turnover
Ratio = Sales / Average Total Assets
|
Company
|
Year 2014
|
Year 2013
|
|
Adidas
|
14,534 / [(11,599 + 12,417)/2] ≈ 1.2 times
|
14,203 / [(11,651 + 11,599)/2] ≈ 1.2 times
|
|
Nike
|
27,799 / [(18,594 + 17,545)/2] ≈ 1.5 times
|
|
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