ANALYSIS OF FINANCIAL STATEMENT Instructor: Dr. Jonchi Shyu
BY GROUP 9
Boby Chandra M10401832 Kosasih Lorencia M10421828 Yulia Ratnasari M10421824 Wichida M10421822
OUTLINE : • Introduction Global Market Industry Analysis • Ratio Analysis • Liquidity Ratio • Asset Management • Debt Management • Profitability • Market Value • Du Pont Equation • Z-Score Analysis • Conclusion & Suggestion
GLOBAL FOOTWEAR MARKET •
Sport has become one of the most popular leisure activities in the world.
•
The rising number of people running.
•
In the USA, according to estimates from Running USA, an online directory of races, there was an all-time high of 541,000 marathon finishers in 2013 of which 43% were women and 47% were 40 years of age and older.
•
People buy sports clothing in order to help them improve their performance by taking advantage of technical innovations.
•
There are also customers who wear sports-inspired clothing because it is trendy and fashionable.
MAJOR TRENDS IN THE INDUSTRY : 1.
Rising health & wellbeing awareness globally.
2.
Increasing active sports participation rates.
3. Development of innovative & technically advanced products.
4. Convergence of casual design with athletic performance.
‘US’ THE LARGEST MARKET
QUICK FACTS of NIKE, Inc. •
American multinational company founded in 1964 by Bill Bowerman & Phil Knight. Began as Blue Ribbon Sports.
•
Headquartered in Beaverton, Oregon, US.
•
Approximately 62,600 employees worldwide (As of May 31st, 2015).
•
Produces footwear, apparel, equipment, and accessories.
•
Nike sells its own brands, Jordan brand, and subsidiaries such as Hurley International and Converse.
“ 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” •
Produces footwear, sportswear, equipment, accessories, and perfumes.
•
The brands of Adidas Group are Adidas, Reebok, Reebok – CCM Hockey, TaylorMade - Adidas Golf, Runtastic, Five Ten.
FINANCIAL FUN FACTS
•
The famous swoosh logo was created in 1971, nine years before the company went public.
•
In 1986, Nike revenues passed $1 billion for the first time.
•
If you had invested $1,000 during Nike's initial public offering (IPO) without reinvesting dividends, your investment would be worth $729,575 today. This represents a compound annual growth rate (CAGR) of just over 20.7%.
•
Your original $1,000 investment would have yielded almost 87 shares. Adjusted for the stock splits, you would hold 5,568 shares today without dividend reinvestment.
Source: www.investopedia.com/articles/markets/120315
•
On November 17th, 1995, Adidas had its first initial public offering (IPO).
•
The Adidas AG share is listed on the German stock exchange in Frankfurt. The stock is part of the DAX 30 index, which consists of the 30 major German companies.
•
Number of shares outstanding (as of December 31, 2015) : 200,197,417.
•
Average trading volume per trading day (2015) : 1,199,167 shares.
•
Market capitalization at year-end 2015
(€ in millions) : 18,000.
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 There’s $ 55 billion USD at stake. China is the second largest sneaker/ footwear market in the world.
5 Social Media Wars: (As of Apr 2014) Facebook ‘Likes’
3
Nike - 35.36m Adidas - 17.16m
Nike is taking over for Adidas as the official, on-court uniform provider in the NBA.
Twitter ‘Followers’ Nike - 1.8m Adidas - 0.9m
2 Adidas moved its head of design from Herzogenaurach to Portland.
4 Three Nike 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).
“The higher the current ratio, the more capable the company is of paying its obligations, as it has a larger proportion of asset value relative to the value of its liabilities.”
Company
2011
2012
2013
2014
2015
ADIDAS
6,435
6,877
6,857
7,347
7,497
NIKE
11,297
11,531
13,626
13,696
15,976
ADIDAS
4,281
4,374
4,732
4,378
5,364
NIKE
3,958
3,865
3,926
5,027
6,334
ADIDAS
1.5
1.6
1.4
1.7
1.4
NIKE
2.9
3.0
3.5
2.7
2.5
Current assets
Current liabilities
Current ratio
CURRENT RATIO
4
3.50
3 Ratio
2.90
3.00 2.70
2
1
1.50
1.60
2011
2012
2.50
Adidas Nike
1.70 1.40
1.40
0 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 RATIO
• The quick ratio is firm’s ability to pay off short-term obligations without relaying on the sale of inventories.
Current assets
Inventories
Current liabilities
Quick ratio
Company
2011
2012
2013
2014
2015
ADIDAS
6,435
6,877
6,857
7,347
7,497
NIKE
11,297
11,531
13,626
13,696
15,976
ADIDAS
2,482
2,486
2,634
2,526
3,113
NIKE
2,715
3,350
3,434
3,947
4,337
ADIDAS
4,281
4,374
4,732
4,378
5,364
NIKE
3,958
3,865
3,926
5,027
6,334
ADIDAS
0.9
1.0
0.9
1.1
0.8
NIKE
2.2
2.1
2.6
1.9
1.8
QUICK RATIO
3.0
2.6
Ratio
2.3 2.2
2.1
1.9
1.5 0.8 '-
0.9
2011
1.0
2012
0.9
2013
1.1
1.8
0.63
0.8 0.53
2014
2015
Adidas Nike Industry Average
Year •
•
During 5 years, Adidas has lower quick ratio than Nike. Adidas also experienced quick ratio less than 1 in some years. It’s also well noted that Adidas has the lowest quick ratio in 2015. It means that Adidas doesn’t 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 TURNOVER RATIO
• Inventory turnover ratio showing how many times a company's inventory is sold and replaced over a period
Company ADIDAS
Sales NIKE ADIDAS Inventories NIKE ADIDAS Inventory turnover ratio NIKE
2011
2012
2013
2014
6,435
6,877
6,857
7,347
11,297
11,531
13,626
13,696
2,482
2,486
2,634
2,526
2,715
3,350
3,434
3,947
4,281
4,374
4,732
4,378
3,958
3,865
3,926
5,027
2015 7,497 15,976 3,113 4,337 5,364 6,334
INVENTORY TURNOVER RATIO 8.0 7.7
Ratio
6.0 5.4
7.2 6.0
7.4
7.0
7.1
5.5
5.8
5.4 5.24
2013
2014
2015
4.0
Adidas Nike Industry Average
2.0 '2011
2012
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)
DAYS SALES OUTSTANDING (DSO)
• A measure of the average number of days that a company takes to collect revenue after a sale has been made. • A low DSO number means that it takes a company fewer days to collect its accounts receivable. • A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.
Company
2011
2012
2013
2014
ADIDAS
6,435
6,877
6,857
7,347
NIKE
11,297
11,531
13,626
2,482
2,486
2,634
2,526
2,715
3,350
3,434
3,947
4,281
4,374
4,732
4,378
3,958
3,865
3,926
5,027
2015 7,497
Sales
ADIDAS Inventories NIKE
Inventory turnover ratio
ADIDAS NIKE
13,696
15,976 3,113 4,337 5,364 6,334
DSO 60.0
54.90 49.62 44.95
Ratio
45.0
46.69 41.40
45.56
45.09 48.87
40.05 44.21
Adidas Nike
30.0
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.
• Financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation.
FIXED ASSET TURNOVER RATIO
“A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.” Sales
Company ADIDAS
Fixed assets turnover
2012
2013
2014
2015
6,435
6,877
6,857
7,347
11,297
11,531
13,626
13,696
963
1,095
1,238
1,454
1,638
NIKE
2,115
2,279
2,452
2,834
3,011
ADIDAS
13.9
13.6
11.7
10.0
10.3
NIKE
9.9
10.6
10.3
9.8
10.2
NIKE Net fixed assets
2011
ADIDAS
7,497 15,976
FIXED ASSET TURNOVER RATIO 13.86
14.0
13.59 11.71
Ratio
10.5
The trend of fixed assets turnover ratios in Adidas over the last 5 years is decreasing (slightly increased in 2015), while Nike trend is increasing. It means Adidas effectiveness in using the investment in fixed assets to generate revenues s decreasing year by year, while Nike is becoming more effective.
10.33
10.00 9.86
10.59
10.32
9.81
10.16
2012
2013
2014
2015
7.0 3.5 '-
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.
2011
Year
Adidas
Nike
• The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets.
TOTAL ASSET TURNOVER RATIO
“The higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets.”
Company ADIDAS
Sales NIKE ADIDAS Total assets NIKE Total assets turnover
ADIDAS NIKE
2011
2012
2013
2014
2015
6,435
6,877
6,857
7,347
7,497
11,297
11,531
13,626
13,696
15,976
11,380
11,651
11,599
12,417
13,343
14,998
15,465
17,584
18,594
21,600
1.2
1.3
1.2
1.2
1.3
1.4
1.6
1.4
1.5
1.4
TOTAL ASSET TURNOVER RATIO 1.7
1.56 1.39
1.64 1.44
1.50
•
1.42
Ratio
1.3 1.17
1.28
1.25
1.17
1.27 •
0.9 0.4 '2011
2012
2013 Year
Adidas Nike Industry Average
2014
2015
Adidas has lower total assets turnover ratios than Nike. It means Nike is generating more revenues per dollar of assets than Adidas. Both Adidas and Nike total assets turnover ratios are lower than industry average, indicating that both companies aren’t generating enough sales given their total assets.
Recommendation • Adidas must rise the total assets turnover ratios by continuously using assets, limiting purchases of inventory and increasing sales without purchasing new assets. • Reduce inventories and increase sales by doing clearance sale promotion for their old stocks • Collect receivables faster.
3
DEBT MANAGEMENT RATIOS
A set of ratios that measure how effectively a firm manager its debt.
“Higher will increase shareholders’ ROE due to tax deductibility, On the other hand ; Lower will more flexible, easily manageable, and enhances debt holder’s confidence.”
Total Debt
Total Equity
Total Capital
TOTAL DEBT TO TOTAL CAPITAL
company
2011
2012
2013
2014
2015
Adidas (million EUR)
6,049
6,360
6,118
6,800
7,696
Nike (million USD)
5,155
5,084
6,428
7,770
8,893
Adidas (million EUR)
5,327
5,304
5,489
5,618
5,648
Nike (million USD)
9,843
10,381
11,156
10,824
12,707
Adidas (million EUR)
11,380
11,651
11,599
12,417
13,343
Nike (million USD)
14,998
15,465
17,584
18,594
21,600
TOTAL ASSET TURNOVER RATIO 60% 45% 30%
53%
55%
34%
33%
2011
2012
53%
55%
58%
42%
41%
2014
2015
37%
55%
37%
Adidas Nike
15% 0% 2013
Average
• Adidas consistently maintain its capital structure (around 55%) and increased by5% from the past five years. • Nike has lower debt ratio (in average 37%) but has been elevated by 7% from the past five years.
Recommendation • Find its optimum financial structure – Otherwise: default risks (i.e. bankruptcy, stockholder and debtholder confidence, and flexibility) could occur
TIMES -INTERESTEARNED RATIO
It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into bankruptcy.
“Company’s ability to meet its debt obligations by how many times interest expense can be paid.”
Operating Profit
Interest Expenses
company
2011
2012
2013
2014
2015
Adidas (million EUR)
1,011
1,185
1,254
883
1,059
Nike (million USD)
2,876
3,056
3,295
3,602
4,265
Adidas (million EUR)
108
97
73
62
65
Nike (million USD)
32
31
23
58
60
TIMES-INTEREST-EARNED RATIO 160.00 143.26
120.00 80.00
89.88
98.58 62.10
40.00 0.00
92.98
Adidas Nike
71.08
9.36
12.22
17.18
14.24
16.29
13.86
2011
2012
2013
2014
2015
Average
• Adidas: in average 13.86 times – doubled from 2011 to 2015, which was 9.36 to 16.29 times respectively • Nike’s 92.98 times in average: lower debt ratio (doubled debt in 2014)
Recommendation – Increase revenue: reinvesting its earnings to other profitable projects • Rebranding Reebok: only 10.35% revenue from total sales • Less focus on Reebok Hockey: only 1.87% from total sales – Reduce its operating cost – Money borrowed: borrow at lower cost of debt
4
PROFITABILITY RATIOS
OPERATING MARGIN
•
•
Operating margin is a margin ratio used to measure a company's pricing strategy and operating efficiency. Return on sales: operating profit per dollar sales
“The higher a company’s operating margin, the better off the company is”
Operating Profit
Net Sales
company
2011
2012
2013
2014
2015
Adidas (million EUR)
1,011
1,185
1,254
883
1,059
Nike (million USD)
2,876
3,056
3,295
3,602
4,265
Adidas (million EUR)
13,344
14,883
14,492
14,534
16,915
Nike (million USD)
20,862
23,331
25,313
27,799
30,601
OPERATION MATGIN 14.00% 13.79%
13.10%
13.02%
13.94% 12.96%
13.36%
10.50% 7.00%
7.58%
7.96%
9.60%
8.65%
7.31% 6.08%
6.26%
2014
2015
Adidas Nike Industry
3.50% 0.00% 2011
2012
2013
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 Nike’s 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 company’s 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 company’s financial performance.
PROFIT MARGIN
Net income
Net Sales
“A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.”
company
2011
2012
2013
2014
2015
Adidas (million EUR)
672
524
790
490
640
Nike (million USD)
2,133
2,223
2,485
2,693
3,273
Adidas (million EUR)
13,344
14,883
14,492
14,534
16,915
Nike (million USD)
20,862
23,331
25,313
27,799
30,601
PROFIT MATGIN 11.00% 10.22%
8.25%
10.70% 9.53% 9.82% 9.69%
9.99%
5.50% 5.45%
5.04%
2.75% 0.00%
3.52%
2011
2012
3.37%
2013
Adidas Nike
2014
3.78%
4.23%
2015 Average
• Adidas: in average 4.23% • Nike: in average 9.99% • Differences between operating to profit margin: 3.07% Adidas and 3.37% for Nike – Main issue: Adidas high operating costs – Adidas’ effective tax rate is higher than Nike.
Recommendation •
•
Maintain current expenditures: Adidas is more efficient in the supporting activities Focusing more in the primary activities: increase sales and reduce costs
•
RETURN ON COMMON EQUITY
Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
“The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.”
Net income
Total Equity
company
2011
2012
2013
2014
2015
Adidas (million EUR)
672
524
790
490
640
Nike (million USD)
2,133
2,223
2,485
2,693
3,273
Adidas (million EUR)
5,327
5,304
5,489
5,618
5,648
Nike (million USD)
9,843
10,381
11,156
10,824
12,707
RETURN ON EQUITY 26.00% 24.88%
19.50%
21.67%
21.41%
13.00%
23.20% 21.20%
22.28%
14.39%
12.61% 9.88%
6.50%
25.76%
11.33%
11.39%
2015
Average
Adidas Nike Industry
8.72%
0.00% 2011
2012
2013
2014
• 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
Recommendation • • •
“Adidas in 2014: What a Disappointing Year!” – The Motley Fool
Strengthening hedging strategy Hockey and golf campaign Political turbulence: employ trend trackers and analyst to be more aware of world’s situation
RETURN ON INVESTED CAPITAL
Operating Profit
Total Asset
Effective Tax Rates
• Measure of cash-on-cash yield and the effectiveness of utilizing capital using NOPAT “Company's ability to use capital efficiently and using it to generate returns. The higher, the better.”
company
2011
2012
2013
2014
2015
Adidas (million EUR)
1,011
1,185
1,254
883
1,059
Nike (million USD)
2,876
3,056
3,295
3,602
4,265
Adidas (million EUR)
11,380
11,651
11,599
12,417
13,343
Nike (million USD)
14,998
15,465
17,584
18,594
21,600
Adidas (million EUR)
0.277
0.293
0.29
0.297
0.329
Nike (million USD)
0.25
0.25
0.247
0.24
0.222
RETURN ON INVESTED CAPITAL 16.00% 12.00%
15.36% 14.82% 14.72% 14.68% 14.38% 14.11%
Adidas Nike
8.00% 4.00%
6.42%
7.19%
7.68% 5.00%
5.33%
2014
2015
6.32%
0.00% 2011
2012
2013
Average
• In average, Adidas yield 6.32% while Nike is 14.68% ROIC – Adidas tax is relatively higher by 5.54% in five years
Recommendation – Comparing with WACC – Guy, Choughari, Trotter (2013), estimated that Adidas’ WACC in 2015 is 9%. Adidas’ 2015 ROIC is less than (5.52% < 9%) • Adidas did not generate enough value. • Find out unprofitable business unit: divest
•
The return on assets (ROA) shows how profitable a company's assets are in generating revenue
RETURN ON ASSET
“The higher the ROA number, the better, because the company is earning more money on less investment.”
Net income
Total Asset
company
2011
2012
2013
2014
2015
Adidas (million EUR)
672
524
790
490
640
Nike (million USD)
2,133
2,223
2,485
2,693
3,273
Adidas (million EUR)
11,380
11,651
11,599
12,417
13,343
Nike (million USD)
14,998
15,465
17,584
18,594
21,600
RETURN ON ASSETReturn on Asset 16.00%
• Adidas (5.19% in average) earned 5.19$ net income using 1$ asset while Nike (14.47% in average) generated 14.47$ – Adidas 2015: 16,915 million EUR sales and 13,343 million EUR total assets – Nike 2015: 21,600 million USD sales and 30,601 million USD total assets
Recommendation • Focusing more in China, Western Europe, and Latin America: net sales >18%, 17%, and 12% • Divest stores and less focus on Russia and Japan: net sales <1% —> through retailers
12.00%
14.22% 14.37% 14.13% 14.48%
15.15%
14.47%
8.00% 4.00% 0.00%
6.81%
5.91% 4.50%
2011
2012
3.95%
2013
2014
Adidas Nike
4.80% 5.19%
2015 Average
•
BEP RATIO
BEP ratio is used to determine how effectively a firm uses its assets to generate income.
“The higher the BEP ratio, the more effective a company is at generating income from its assets.”
Operating Profit
Total Asset
company
2011
2012
2013
2014
2015
Adidas (million EUR)
1,011
1,185
1,254
883
1,059
Nike (million USD)
2,876
3,056
3,295
3,602
4,265
Adidas (million EUR)
11,380
11,651
11,599
12,417
13,343
Nike (million USD)
14,998
15,465
17,584
18,594
21,600
BASIC EARNING POWER AND TOTAL ASSETS 20.00% 19.18%
19.76%
14.22%
18.74%
19.37%
14.37%
14.13%
14.48%
10.17%
10.81%
15.00% 10.00% 8.88%
5.00%
6.81%
5.91% 4.50%
7.11% 3.95%
19.75% 15.15%
7.94%
19.36%
14.47%
8.98%
4.80%
5.19%
2015
Average
0.00% 2011
2012
2013
2014
• BEP: Nike in average 19.36 and Adidas in average 8.38% • Adidas tax and interest effects is (3.79%), lower than Nike (4.89%) – Adidas’ tax and interest is higher
Recommendation • •
Invest more in non-operating activities to earn more revenue Focus on lean operation management
Adidas ROA Nike ROA Adidas BEP Nike BEP
5
MARKET VALUE RATIOS
Price/ Earnings Ratio
The ratio of the price per share to earnings per share ; show the dollar amount investors will PAY FOR $1 OF CURRENT EARNINGS.
“P/E ratio is as a reflection of the market’s optimism concerning of company’s growth prospects.”
Company
2011
2012
2013
2014
2015
ADIDAS
50.26
67.33
92.64
57.62
89.91
NIKE
84.45
108.18
61.66
76.91
101.67
ADIDAS
3.20
3.78
4.01
2.72
3.32
NIKE
4.39
4.73
2.71
2.97
3.70
ADIDAS
15.71
17.81
23.10
21.18
27.08
NIKE
19.24
22.87
22.75
25.90
27.48
Price per share
Earnings per share
P/E ratio
PRICE/EARNINGS RATIO 25.90
28 22.87
Ratio
2119.24 1415.71
22.75 23.10
27.48 27.08 25.90
21.18
Adidas Nike Industry average
17.81
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.
Market/ Book Ratio
A ratio used to find the value of a company by comparing the book value of a firm to its market value. M/B ratio typically exceed 1.0, which means that investors are willing to pay more for stocks than the accounting book values of the stock
Company
2011
2012
2013
2014
2015
ADIDAS
50.26
67.33
92.64
57.62
89.91
NIKE
84.45
108.18
61.66
76.91
101.67
ADIDAS
25.48
25.29
26.20
27.52
28.30
NIKE
20.26
22.10
12.17
11.95
14.37
ADIDAS
1.97
2.66
3.54
2.09
3.18
NIKE
4.17
4.90
5.07
6.44
7.08
Price per share
Book per share
M/B ratio
MARKET/BOOK RATIO 8 7.08
Ratio
6 4
6.44 4.90
Adidas Nike
5.07
4.17 3.54
2
2.66
2.09
1.97
0 2011
2012
3.18
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 Equation
“The DuPont Analysis is a method of performance measurement which assets are measured at their gross book value in order to produce a higher ROE”
ROE = Net Income * Sales * Sales Total Assets
Total Assets Common Equity
The formula focus on expense control(PM ), asset utilization(TA TO), and debt utilization(equity multiplier)
ADIDAS Profit Margin
Total Asset Turnover
Equity Multiplier
ROE
2011
5.04%
1.17
2.13
12.60
2012
3.52%
1.28
2.02
9.90
2013
5.45%
1.25
2.12
14.41
2014
3.37%
1.17
2.21
8.71
2015
3.78%
1.27
2.35
11.29
NIKE Profit Margin
Total Asset Turnover
Equity Multiplier
ROE
2011
10.22%
1.39
1.52
21.67
2012
9.53%
1.51
1.49
21.41
2013
9.82%
1.44
1.58
22.27
2014
9.69%
1.50
1.72
24.88
2015
10.76%
1.42
1.70
25.76
Profit Margin 11.00% 10.22%
Ratio
8.25%
9.53%
9.82%
10.70% 9.69%
5.50% 5.45%
5.04% 2.75%
3.52%
3.37%
3.78%
2014
2015
Because of profit margin is the weakness point. Adidas still have high Operating cost Therefore, They should try to reduce Adidas especially expenditure for Nike marketing investment which is accounted for26% of total operation expense.
0.00% 2011
2012
2013
Total Asset Turnover
Year 1.6
1.39
1.2 Ratio
According to Adidas has inventories 23.3% of total asset, They should decrease inventory stock and improve their credit policy in order to reduce accounts receivable.
1.56
1.17
1.28
1.44
1.25
1.50
1.17
1.42 1.27
Adidas Nike
0.8 0.4 '2011
2012
2013 Year
2014
2015
Equity Multiplier 2.4
Ratio
1.8 1.2
2.13
2.02
2.12
1.52
1.49
1.58
2011
2012
2013
2.21
2.35
1.72
1.70
2014
2015
Adidas Nike
0.6
Adidas’s ROE goes up due to the equity multiplier. This is simply making things more risky, if company is getting over-leverages. Adidas’ financial structure relies heavily in its debt: purchase assets using debt
'-
ROE
Year 26.00%
Adidas’ equity utilization is lower than Nike, even though its equity multiplier is higher Therefore, Adidas should increase its Net income, utilize its equity more efficiently and effectively, and reduce its expenses.
24.88% 25.76%
19.50%
21.67% 21.41% 22.28%
13.00%
14.39%
12.61%
11.33%
9.88%
6.50%
Adidas Nike 8.72%
0.00% 2011
2012
2013
2014
2015
7
Z-SCORE ANALYSIS
“The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company’s likelihood of BANKRUPTCY” The Altman Z-score, is based on 5 financial ratios that can be calculated from data found on a company’s annual 10K report. The Altman Z-score is calculated as follows :
Z-score = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 0.999T5
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
Adidas Working Capital Total Assets T1 Retained Earnings Total Assets T2 EBIT Total Assets T3 Market Value of Equity Total Liabilities T4 Sales Total Assets T5 Z-score
2011 2,154.00 11,380.00 0.19 4,348.00 11,380.00 0.38 1,011.00 11,380.00 0.09 11,018.00 6,049.00 1.82 13,344.00 11,380.00 1.17 3.32
2012 2,503.00 11,651.00 0.21 4,454.00 11,651.00 0.38 1,185.00 11,651.00 0.10 14,760.08 6,360.00 2.32 14,883.00 11,651.00 1.28 3.80
2013 2,125.00 11,599.00 0.18 4,959.00 11,599.00 0.43 1,254.00 11,599.00 0.11 20,308.54 6,118.00 3.32 14,492.00 11,599.00 1.25 4.42
2014 2,969.00 12,417.00 0.24 4,839.00 12,417.00 0.39 883.00 12,417.00 0.07 11,773.49 6,800.00 1.73 14,534.00 12,417.00 1.17 3.28
2015 2,133.00 13,343.00 0.16 4,874.00 13,343.00 0.37 1,059.00 13,343.00 0.08 17,999.98 7,696.00 2.34 16,915.00 13,343.00 1.27 3.63
Nike Working Capital Total Assets T1 Retained Earnings Total Assets T2 EBIT Total Assets T3 Market Value of Equity Total Liabilities T4 Sales Total Assets T5 Z-score
2011 7,339.00 14,998.00 0.49 5,801.00 14,998.00 0.39 2,844.00 14,998.00 0.19 41,031.72 5,155.00 7.96 20,862.00 14,998.00 1.39 7.92
2012 7,666.00 15,465.00 0.50 5,588.00 15,465.00 0.36 3,025.00 15,465.00 0.20 50,822.96 5,084.00 10.00 23,331.00 15,465.00 1.51 9.25
2013 9,700.00 17,584.00 0.55 5,695.00 17,584.00 0.32 3,272.00 17,584.00 0.19 56,505.22 6,428.00 8.79 25,313.00 17,584.00 1.44 8.44
2014 8,669.00 18,594.00 0.47 4,871.00 18,594.00 0.26 3,544.00 18,594.00 0.19 69,665.08 7,770.00 8.97 27,799.00 18,594.00 1.50 8.43
2015 9,642.00 21,600.00 0.45 4,685.00 21,600.00 0.22 4,205.00 21,600.00 0.19 89,916.95 8,893.00 10.11 30,601.00 21,600.00 1.42 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 wellselected partnership Find its optimum financial structure Increase operating efficiency (tightly managing overhead expenses, curtailing operational investments, e.g staff hiring).
OVERVIEW OF ADIDAS
- Market capitalization approaching $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-month sales 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 perhaps has the most to lose. Its shares
perceived values relative to the other two companies.
reached all-time highs in 2015, and its growth projections continue to be aggressive. •
Competitors like Under Armour will continue to innovate to attempt to steal market share away, and the younger generation of buyers may show signs of favoring smaller brands and more transparently sourced goods that they can obtain easily through online shopping.
B U Y, S E L L , O R H O L D ? ADIDAS:HOLD
NIKE:BUY • Despite the company's stability, size and growth, investors should steer clear of investing in Nike for 2016. • Nike is a mature company, and its stock is hitting all-time highs. Those stock prices would seem to reflect its aggressive growth goals. • If any of those goals waver, a stock price correction is sure to follow.
• While Adidas is also a mature apparel company, the pricing for 2016 appears attractive. • Its P/E ratio is much more reasonable, and it pays a better dividend than Nike. • Adidas is unlikely to experience exponential share price growth, but at its current price, it appears to be a sound investment for 2016. • However, considering its other financial ratios, it is better to wait and see.
REFERENCE : •
www.adidas-group.com/en/investors/share
•
www.investopedia.com/articles/markets/120315
•
http://www.investopedia.com/articles/markets/012616/adidasvs-nike-vs-under-armour-which-2016-nkeua.asp
• Adidas Annual Report 2011 – 2015 • Nike Annual Report 2011 – 2015 • http://csimarket.com/Industry/Industry_Data.php?ind=401
THANK YOU FOR YOUR ATTENTION
