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As a consequence, the company is forced to be the leader in innovation and design fields, seeking to help athletes of all skill levels to achieve their peak performances. They focused the attention on customer experience and, as one of main actions, they started a campaign of restyling of stores: they want the customer to feel like a professional player who is going along the tunnel to arrive on the pitch in a crowded stadium.
This was done especially in the USA, where the company put together a strongly experienced management team in order to improve competitive position. North America was defined as the key priority for the future: it leads to huge investments, mostly in marketing, such as deals with sport players, integration of channels and strengthen its presence in universities and colleges. For the company is not always easy to create value for all stakeholders, since the priorities may vary due to different perspectives and objectives.
Diverse brand portfolio In order to maximize the number of customers, the company embraced a multi-brand strategy: they provide distinct products to a wide spectrum of potential customers, since they believe that everyone deserves the best choice and everyone deserve to find a product that match their respective individuality. Each brand keeps a unique identity and focuses on its core competencies: this way each one strengthens its own products and processes, and they all together provide the group with a broad product offering.
Investment focused on highest potential markets and channels Through the multi-brand strategy, Adidas Group aims at taking strong market positions in all markets they are competing in; in last period they are putting lots of effort in markets characterized by medium to long- term growth and profitability opportunities.
Strategic Financial Management - Analysed company: adidas AG
In each market, the company manages to present the brands in the most impactful and effective way by tailoring the distribution strategy, based on distinctive, coordinated channel approach. Coordination of the channels will be even more important in the future, as well as people will be able to buy online and pick up in the closest store. Creating a flexible supply chain. AG has created a flexible supply chain, with the aim of building maximum flexibility reducing creation and production lead times , consistently with the key strategic priority of continuous improvement of their infrastructure, processes and systems.
This way they quickly react to changings in customers trends. About suppliers for example, we noticed that the Group has outsourced most of its production, working nowadays with more than 1 independent factories established all over the world 61 countries.
They are one of the very few companies in the industry that has fully disclosed its global supplier list [see Bibliography, page 32]: we can see from the following graph the distribution of suppliers by region and the different typologies of suppliers that they have, accordingly to the depth of relationships. Develop a team grounded in their heritage Role of the founder is highly relevant for the company: indeed, cultural environment is shaped by both past tradition and future aspirations, and it stimulates creativity, innovation and team spirit.
The bold between past and future is represented by sharing the same values, like commitment to the athlete, quality and love for sport, as well as the pride and passion for what they do. Becoming a sustainable company 4P The success of a company is measured also by the satisfaction of its employees and its environmental sustainability. Moreover, since AG needed to be more impactful in the marketplace, their management needed to take decisions faster: as a result, Adidas built up an organizational model centred on the customer and based on clear roles and responsibilities, lower levels of escalation and clear accountability clear business unit strategy.
This way, the decisions are taken in higher number and much faster: both efficiency and efficacy increased a lot, improving the decision making process. Sustainability strategy AG has always been sensitive to social and environmental issues: since , the company has been publishing the sustainability report and has been a member of Fair Labour Association. The goal in this sense is to provide the best product to athletes in order to make a difference in their performances, in the same way that the company makes a difference in the area of sustainability.
When the company decided to start publishing the sustainability report, their aim was to be transparent and responsive towards stakeholders, both individuals, companies and community: the structure of report has changed across these 15 years according to their feedback and to the industry guidelines for best practise provided by GRI Global Reporting Initiative. Sustainability is a topic that can be found across all the company and it is carried day-by-day by an experienced team of 70 people settled all over the world, in order to tackle the key impacts of supply chain operations in each specific location.
According to the 4P strategy, the company undertook several actions regarding the four main aspects of people, product, planet and partnership. People: AG gives priority to the respect of the rights of workers, to the protection of most vulnerable groups of them and to the promotion of wages negotiation with factory employers. With other words, Adidas shows with facts to be against exploitation of workers: they introduced a hotline SMS system in order to reduce the distance between management and factory workers, but also for example a few learning programs aimed at personal-skill development.
The company takes care about their employees, since they are a source of innovation: they also have a very open-minded approach to diversity, since it leads to creativity and high performances. The social commitment of AG for the community is very high: they cooperate with charity associations, support humanitarian aid efforts at global level and have lots of initiatives to help especially teenagers and children: the aim is to improve life of people by means of sport.
Product: the company aims mostly at the sustainability of both materials and manufacturing processes in the factories. This positive result was achieved by setting clear targets for suppliers and helping them build strong relationships within their own supply chains.
Another main objective of the company is to reduce the water, energy and chemical-product use in the operations. Partnership: AG established long-term partnerships with key suppliers, since they are strongly convinced that it brings to far greater benefits for both sides than maximising short-term profits. They provide to suppliers manuals for self-assessment of environmental issues, as well as training sessions and materials. Planet: the company introduced and showcased the green retail concept, bringing sustainability thinking into the stores.
They also went on with the Green Company Initiative, to improve the environmental performance of offices, factories and distribution centres international standard ISO certification. Financial analysis To conduct this financial analysis, the main step is calculating several performance indicators, then we focused on which are fundamental for the company, according to its strategy and structure. In addition, the indicators with remarkable changes between and should be considered, trying to find out the reasons for them.
Later on we emphasized the facts that had a considerable impact on the company for the last year, for instance, decreasing in share capital or the purpose to sell Rockport, in order to have a complete and particular view. Some of the most important indicators have been analysed in the following section. Operating Margin. AG is highly focused on this, because it represents the operational progress.
This key indicator shows how much the company improves the efficiency of business cycle. This decrease of This is the reason for several changes in most of indicators related to the performances of AG. Operating Margin in has decreased approximately To have a more complete view of financial indicators performance, it is necessary to do benchmarking between other companies such as Nike and Puma that are in the same industry: they are chosen to understand better the performance of Adidas Group.
Nike is bigger and is going better than AG: the first and foremost reason for selecting Nike is that being leadership in a market which is characterized by a continuous improvement prospective.
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We also chose them to understand how much our focus company is far from the best performing competitor in the industry. Contrarily, Puma is smaller and its results do not reach the ones of Adidas Group: however, considering Puma is important because it is similar in the company structure. Therefore the effects of exchange rates are much more understandable for results of both companies. The changes in exchange rates probably had a similar impact on both Adidas and Puma: so, considering their performance trends, we are indirectly taking into account this problem.
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These are some reasons that brought us to select Nike and Puma as main competitors. Related to operating margin, the value of Nike is higher than the one of Adidas 9. About Puma, the value is lower: 4. Asset Turnover Ratio. It is another significant indicator that identifies the ability to manage assets in order to generate revenues: this is practically the productivity of assets.
To be concrete, the value for is 1. Rockport was a subsidiary of Adidas since , producing dress and casual shoes with sport technology: AG have tried to bring sport- inspired innovation to its shoes by building up a partnership with Rockport Group, that was particularly focused on innovation and high quality, but in they decided to give up and to invest that money in other businesses.
Inventory Turnover Ratio. Concerning the Inventory Turnover Ratio, it seems that AG improved the efficiency in managing inventories: in fact, the indicator's value increased of 0. Just to have a comparison, the same indicator for Nike is 7 and for Puma is 5. Effective Tax Rate.
On the other hand, for Puma taxes represent a huge part of the company's gross profit, reaching the Return on Equity. Adidas Group dedicates lots of attention to its shareholders, as every company: a significant indicator is Return on Equity that measures how much money the investments bring in the company. On this aspect, Nike goes really better, with a ROE of On the contrary, AG is doing a little better 1.
Payout Ratio. In comparison with Nike and Puma, AG got the best result: they had respectively Considering the liquidity of the company, a good position for Adidas is shown by the current ratio. In relation with the other similar companies, Nike has a quite similar result 1. Residual Income. Few words about RI of Adidas Group. We considered the cost of capital depending on the financial structure of the company, with other words the value of WACC.
We took the numbers of every element included in the formula and calculated the WACC value.
There is a strange situation in , because of unrealistic result of WACC value, around 1. So the good result in the RI for This unusual value of WACC come from the value of the cost of equity: it is so low because the return of the market is about 1. Considering the value of WACC was around By considering more realistic situation, we can calculate a new value of WACC for with the assumption of a constant return of the market from In this case, we keep the values of for debts, equity, risk free, cost of debts and taxation corporate: with other words, we take only the return of the market of previous year.
As result, the WACC increases and reaches the Applying this value for the RI of the , we can notice that the number became negative, so the amount for required return on an accounting measure of investments exceeds an accounting measure of net operating income. Now, showing something that could be particularly relevant in a managerial prospective, we take into account the trend of Net Working Capital and Net Financial Debts.
Net Working Capital is a measure of the operating liquidity in a company and represents the amount of cash necessary to run the business during the working cycle. Looking at the trend for NWC, we can see that it is positive: it increased of 7. Concerning Net Financial Debt, it is a measure of a company's ability to repay all debts.
Related Strategic Financial Management - Analysed company: adidas AG
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