Feb 15, 2021 in Coursework


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Adidas AG is a leading international manufacturer of sports clothing and accessories, headquartered in Bavaria, the Federative Republic of Germany. The company is registered as a public limited company, with the annual revenue for the 2012 accounting year declared at the level of 14.48 billion. The operating income for the similar accounting period was reported to be 1.011 billion despite the tremendous negative impact inflicted on the clothing industry by the recent financial crisis. The closest competitor of the company, which is Puma Company, reported negative income. The fact that Adidas performed positively indicates that currently, the financial management of the company is being conducted effectively, despite the negative influence of the macroeconomic determinants.

Financial analysis is important for the needs of company prospects estimation and its future ability to meet the expectations of the company performance stakeholders. In fact, considering that Adidas is registered as a public limited company manifests that an army of shareholders is deeply interested in the successful business performance of this unit. For the needs of effective financial analysis, multiple tools of analytical financial research have been developed. Moreover, different analytical computational solutions have been developed to evaluate different spheres of the company's performance. For instance, while return on shareholders' funds is the primary source of information for the prospective investors of mergers and acquisitions partners, the gross profit margin ratio is usable for the assessment of the general financial performance of the company.

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The objective of this report is to analyze the current financial performance of Adidas Public Limited Company in the light of its previous performance and the financial activity of its closest competitor, Puma Company. Specific accent has been placed on the return on capital employed, return on shareholders funds, gross profit margin ratio, inventory turnover ratio, settlement periods for trade payables and trade receivables, and other microeconomic and accounting metrics. The report is finalized with the conclusion on the current financial performance of the company and advisory opinion to the prospective shareholders.

Financial Analysis

The current financial analysis places focus on the industry evaluation of the multiple financial indexes. However, the primary focal point is made on the indicators that are commonly utilized to calculate the investment attractiveness parameters of the business entity and the metrics, which are included in the annual reports submitted to the company shareholders.

First and foremost, the return on capital employed, which is sometimes referred to as return on assets, while a significant difference between these metrics exists, is the financial tool that helps to understand the efficiency rate of the involved capital use. To be more specific, it ascertains whether the invested capital is used effectively by the company. To calculate the return on capital employed, one should divide the company earnings before interests and taxes on the capital employed parameter. In 2012, Adidas AG Plc declared 19.3% of the return on capital employed in its annual financial statement.

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Secondly, the return on shareholders' funds is ubiquitously used to calculate the profit for the period, which is disposable to the non-privileged shareholders with the ordinary stakes in the business. For Adidas, these figures stand at 11% for the 2012 accounting year.

The gross profit margin ratio is used to assess a firm's financial performance by exposing the proportion of the cash leftover from the accrued revenues after the calculation of the cost of goods sold. The objective of the gross profit margin is to cope with future operating and other expenses. Generally, this indicator shall remain stable to demonstrate that the company operates successfully. For Adidas Plc, this figure was fixed at 49.3% for the 2012 accounting year. The absence of sufficient gross profit margin savings may result in the inability of the company to handle the overhead expenses and to continue long-term future planning. Adidas Plc demonstrates a comparatively high ratio since Puma declared 29% for the 2012 financial accounting year. Therefore, Adidas is more stable financially from this perspective

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Inventory turnover ratio financial indicator is used to conclude on the number of time periods when the company sells its inventory and replaces it to continue production and sales operations. This accounting parameter for Adidas was reported 413 days.

Settlement periods for accounts payables and receivables are the periods, which are necessitated by the company to collect the due payments from its debtors and to cope with the existing liabilities respectively. These financial indicators are utilized to demonstrate the ability of the company to handle the unforeseen expenditures, which may arise, because of litigation, the collapse of specific industries of the company, unexpected financial downturns, unforeseen loss of the company major assets, and other issues, which may reduce the general paying abilities of the company (Needles & Powers 2012). For Adidas, the settlement for the accounts period is 61 days, while the settlement period for the accounts receivables is fixed on 56 days (Adidas FS). This ratio is positive, suggesting that the company is capable of meeting unexpected financial difficulties. For Puma, this ratio is negative; suggesting that the company may face difficulties under similar circumstances and therefore a bank loan or other increase on liabilities is probable.

Financially, a quick ratio (also known as a financial liquid test) is used to determine the capacity of the company to handle the current liabilities immediately using cash. For Adidas, this figure is fixed on 0.74, which suggests that the company is capable of meeting 74% (Adidas FS) of the creditor's demands on an immediate basis.

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The interest coverage ratio is used to determine the ability of the company to determine the interests on outstanding debt. For Adidas Company, this figure is set at 9.06 for the 2012 financial year. This figure demonstrates that the company is capable of satisfying the interest payments on an immediate basis if required.

The gearing ratio is used to calculate the correlation between the outstanding long-term debts of the company to its equity capital. For Adidas, this figure is 0.51, demonstrating that 51% of the company debt is to be satisfied using the equity sale.

Earnings per share report how many dollars are attributed to each share emitted by the company of common stock. To compute this figure, the net income of the company is divided by the number of the emitted and sold common stock during the analyzed financial period. For Adidas Company, this figure was set at 3.78 Euro per share (Adidas FS). Considering the amount of the emitted shares, this parameter is comparatively successful, although the closest competitor, Puma declared 4.51 Euro per share (Puma FS).

The dividend payout ratio is used to demonstrate the correlation between the dividends and the net income for the period. The dividend yield for Adidas was calculated at 1,46% point in 2012 and the payout ratio was reported to be 29%.

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The conducted analysis demonstrated that Adidas public limited company performed successfully during the 2012 accounting year. Specifically, the company managed to weather the 2008-2010 financial storms successfully. Most notably, the current ratio and the earnings per share, which are considered to be the major financial parameters of the company performance evaluation, are positive (Needles & Powers 2012). The only threat for the company is the immediate demand of the creditors to satisfy the outstanding liabilities, which is not likely to happen, because of the existing contractual obligations and insurance agreements.

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