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SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN

THE DESIGN SCHOOL

FOUNDATION IN NATURAL AND BUILD ENVIRONMENTS

GROUP MEMBERS : LOH PEY MUN ( 0318572 )

MICHAEL CHANG VUI LOONG (031998)

SIM SI KAI (0318609)

COURSE : BASIC ACCOUNTING

COURSE CODE : ACC30205

TITLE : FINANCIAL RATIO ANALYSIS

LECTURER : MR.CHANG JAU HO

SUBMISSION DATE : 16 JAN 2015

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CONTENTS

1 Cover Page 1

2 Contents 2

3 Adidas Group

-Introduction

-Brief History

-Board of Directors

-Recent Development

3 - 5

4 Profitability Ratios 6

5 Stability Ratios 7

6 Price/Earnings Ratio 8

7 Investment Recommendation 9

8 Appendix – Income Statement 2012 & 2013

– Balance Sheet 2012 & 2013

10-16

9 References 17

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ADIDAS GROUP

INTRODUCTION

Adidas is a German multinational corporation that design and manufactures sports clothing and

accessories. The company is based in Herzogenaurach, Bararia, Germany. It is the holding

company for the Adidas Group which consists of the Reebook, TaylorMade-Adidas, Rockport,

FC Bayern Munich and Ashworth. Adidas is the biggest sport-wear manufacturer in Europe and

the second largest sport-wear manufacturer in the world, after Nike. The company’s products

designs classically feature 3 parallel bars, and the same motif is incorporated into Adidas’s

current official logo (below). The company revenue for 2013 was listed at 14.88 billion.

BRIEF HISTORY

Adidas was found by Adolf Dassler. On 1 July 1924, Adolf with his brother, Rudolf Dassler

which become Dassler Brothers Shoe Factory. By 1936 Summer Olympic, Adolf Dassler

persuaded U.S. sprinter Jesse Owens to use his product. It was the first sponsorship for an

African American. After that, both brothers joined the Nazi Party, but Rudolf more closely to the

party. After the war, Rudolf was chosen up by American soldiers and became the member of the

Waffen SS, he was felt that his brother betrayed him. 1947, the brothers split up. Rudolf formed

a new firm called Ruda (Puma).On August 18, 1949, Adolf registered the “Adi Dassler Adidas

Sportschunfabrik” and the famous Adidas 3-sreipes logo in Herzogenaurach. In 2005, Adidas

introduced the Adidas 1 , the first production shoe to use the microprocessor capable to perform

5 million calculations per second. On 11 April 2006, Adidas announced an 11-year deal to

become the official NBA clothes provider. For many years, Adidas has branded range of male

and female deodorants, perfumes, aftershave, lotions and other accessories.“Impossible is

Nothing ”become the slogan of Adidas. Nowadays, Adidas is one of the world’s popular brands.

Adolf Dassler

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BOARD OF DIRECTORS

Adidas Group’s executive board is comprised of 5 members. Each Board member is

responsible for at least one major within the group.

*From left to right

1 Glenn Bennett ( Global Operations )

2 Roland Auschel ( Global Sales )

3 Herbert Hainer ( Chief Executive Officer,CEO )

4 Erich Stamminger ( Global Brands )

5 Robin J.Stalker ( Chief Financial Officer )

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RECENT DEVELOPMENT

Adidas Group attempts to be a global leader in the sporting goods industry with brand built upon

a passion for sports and sporting lifestyle. The developments of Adidas Group include Taylor

Made-Adidas Golf, Rockport and Reebook-CCM Hockey segments. All of these segments have

its own policy in place in order to address its specific target groups directly and further expand

its market share. As follows, they contribute together to our Group’s overall aim: to be the global

leader in the sporting industry.

Besides that, the ambition of the Adidas Group is to have a sustainable company. Their

company’s sustainability strategy is too entrenched in the Group’s value which is performance,

passion, integrity, and diversity. There have four pillars o f Adidas Group’s strategy are people,

product, planet and partnership. People, they hope that all workers will have a good

communication in order for their business to be presence in the market. For Product, they

increase the use sage of more sustainable materials. Other than that will be planet, they decrease

the environmental footmark of both their actions and their suppliers’ factories. Finally,

partnership, they involve their critical shareholders and cooperate with partners to improve the

industry.

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PROFITABILITY RATIOS

*Units represented € in millions

Profitability

Ratios

2012 2013

Interpretation

Return on Equity

(ROE)

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑂𝑤𝑛𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦× 100 %

524

(5291 + 51282

) × 100% = 10.05 %

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑂𝑤𝑛𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦× 100 %

790

(5481 + 52912

) × 100% = 14.67 %

During the 2012 -2013 period, the business ROE

increased from 10.5% to 14.67% .This means the

owner is getting more return from his capital.

Net Profit

Margin

(NPM)

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

524

14883 × 100% = 3.52%

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

790

14492 × 100% = 5.45%

During the 2012 -2013 period, the business NPM

increased from 3.52 % to 5.45% .This means the business is getting better at

controlling its expenses.

Gross Profit

Margin

(GPM)

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

7103

14883 × 100% = 47.72%

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

7140

14492 × 100% = 49.27%

During the 2012-2013 periods, the business GPM

increased from 47.72% to 49.27% .This means the business is getting better at

controlling its COGS expenses.

Selling Expenses

Ratio (SER)

𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

3075

14883 × 100 % = 20.66%

𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

3066.5

14492 × 100 % = 21.16%

During the 2012-2013

periods, the business SER increased from 20.66% to 21.16%. This means the

business is getting better at controlling its selling

expenses.

General

Expenses Ratio

(GER)

𝑇𝑜𝑡𝑎𝑙 𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

3075

14883 × 100 % = 20.66%

𝑇𝑜𝑡𝑎𝑙 𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

3066.5

14492 × 100 % = 21.16%

During the 2012 – 2013 periods, the business GER increased from 20.66% to

21.16%.This means the business is getting better at

controlling it general expenses.

Financial

Expenses Ratio

(FER)

𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

105

14883 × 100% = 0.17 %

𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 × 100 %

94

14492 × 100% = 0.65 %

During the 2012-2013

periods, the business FER increased from 0.17% to 0.65%. This means the

business is getting better at controlling it financial

expenses.

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STABILITY RATIOS

*Units represented € in millions

Stability

Ratios

2012 2013 Interpretation

Working

Capital

𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡

𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

6877

4374= 1.57 ∶ 1

𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡

𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

6857

4732 = 1.45 : 1

During the year 2012 -2013 period, the business WCR has decreased from 1.57:1 to 1.45:1 .This means the business ability to pay its current liabilities is getting worse. In addition, it does not satisfy the minimum requirement 2:1.

Total Debt

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠× 100%

6360

11651× 100% = 54.59%

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠× 100%

6118

11599× 100% = 52.75%

During the year 2012 -2013 period, the business TDR has decreased from 54.59% to 52.75%. This means the business total debt has reduced .In addition, the business still exceed the maximum limit of 50%.

Stock Turnover

365𝐷𝑎𝑦𝑠 ÷ [𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑆𝑜𝑙𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦]

365𝐷𝑎𝑦𝑠 ÷ [7780

2494] = 177 𝐷𝑎𝑦𝑠

365𝐷𝑎𝑦𝑠 ÷ [𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑆𝑜𝑙𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦]

365𝐷𝑎𝑦𝑠 ÷ [7352

2560] = 127.10 𝐷𝑎𝑦𝑠

During the year 2012 -2013 period, the business STR has decreased from 177 to 127.10 day. This means the business is getting faster in selling their goods.

Debtor

Turnover

365Days ÷ [Credit Sales

Average Debtors]

365Days ÷ [7441.5

1838.5]=90.18Days

365Days ÷ [Credit Sales

Average Debtors]

365Days ÷ [7246

1748.5]=88.08Days

During the year 2012 -2013 period, the business DTR has decreased from 90.18 to 88.08 days. This means the business is getting faster at collecting its debts.

Interest Coverage

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝐼𝑛𝑡𝑒𝑟𝑠𝑒𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

105 + 524

105= 5.99 𝑇𝑖𝑚𝑒𝑠

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝐼𝑛𝑡𝑒𝑟𝑠𝑒𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

94 + 790

94= 9.40 𝑇𝑖𝑚𝑒𝑠

During the year 2012 -2013 period, the business ICR has increasing from 5.99 to 9.40 times. This means the business ability to pay its interest has become better. In addition, it satisfies the minimum

requirement of 5 times.

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PRICE / EARNINGS RATIO

Price / Earnings Ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑺𝒉𝒂𝒓𝒆 𝑷𝒓𝒊𝒄𝒆

𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝑷𝒆𝒓 𝑺𝒉𝒂𝒓𝒆 (𝒊𝒏 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒕𝒊𝒎𝒆𝒔 )

Share price of Adidas Group as at 15 January 2015 is 56.41 €.

Earnings per share of Adidas Group as at 15 January 2015 is 2.98 €.

P/E Ratio = 𝟓𝟔.𝟒𝟏 €

𝟐 .𝟗𝟖€ = 18.93 times

Interpretation: From the above, we can see that the outcome is 18.93 times. That means that the share

price of Adidas Group is high. If any investor buy the share of Adidas Group, he or she would have to wait

for almost 19 years to recoup his investment.

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INVESTMENT RECOMMENDATION

Base on the profitability ratio, the Return of Equity (ROE) has showed that ROE have increase

from 10.05% to 14.67% in 2012 to 2013 period, this is an good news because the owner of

Adidas have gotten more return from his capital .Beside that Adidas group has gotten better in

controlling in their expenses, the Net Profit Margin (NPM) has increase from 3.52% to 5.45%

during 2012 to 2013 period. In the period of 2012 to 2013 , Gross of Profit Margin (GPM) has

also increase from 3.52% to 5.45%, this shown that the Adidas group had gotten better in

controlling Cost of Goods Sold expenses .The Selling Expenses Ratio (SER) has increase from

20.66% to 21.16% , based on that , the Adidas group has gotten better in controlling its selling

expenses. And now , the General Expenses Ratio (GER) has showed a slight increase from 20.66%

to 21.16% , this means that the business had gotten better in controlling their general

expenses .For Financial Expenses Ratio (FER) has increase from 0.17% to 0.65% ,that show the

Adidas group has gotten better in controlling its financial expenses .

For Stability Ratio ,the Working Capital has decrease from 1.57:1to 1.45: 1 , the ability of

Adidas group in paying its current liabilities is getting worse , besides that it’s does not satisfy

the minimum requirement of 2:1 , this is a good thing .The Total Debt for Adidas group has

decreases from 54.59 % to 52.75% , this show that the Adidas group has reduce the business debt

which is a good thing but the business still exceed the maximum limit of 50%.And for Stock

Turnover , Adidas group of Stock Turnover has decreases from 177 to 127.10 days , this show

that Adidas group is getting faster in selling their goods .Other than that ,Debtor Turnover has

decreases from 90.18 to 88.08 days .Adidas group has gotten faster in collecting its debts .Finally

Interest Coverage Ratio has increases from 5.99 to 9.40 times , this means the ability to pay its

interest has become better and it satisfies the minimum requirement of 5 times .

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APPENDIXES

Page 11

INCOME STATEMENT OF ADIDAS GROUP FOR THE YEAR ENDED 31

DECEMBER 2012

Page 12

BALANCE SHEET OF ADIDAS GROUP AS THE YEAR ENDED 31

DECEMBER 2012

Page 13

Page 14

INCOME STATEMENT OF ADIDAS GROUP FOR THE YEAR ENDED 31

DECEMBER 2013

Page 15

BALANCE SHEET OF ADIDAS GROUP AS THE YEAR ENDED 31

DECEMBER 2013

Page 16

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REFERENCES

1. Adidas Group Annual Report 2011

-http://www.adidas-group.com/media/filer_public/2014/03/05/adidas-

group_gb_2013_en.pdf

2. Adidas Group Annual Report 2012

-http://www.adidas-group.com/media/filer_public/2013/07/31/ gb_201

2_en.pdf

3. Brief Bio of Adidas Group

-http://www.adidas-group.com/en/group/history/

-http://www.adidas-group.com/en/group/profile/

-http://www.adidasuk.co.uk/Adidas_History

-http://taylorsadidas.blogspot.com/2013/04/history-of-addidas.html

-http://en.wikipedia.org/wiki/Adidas

4. Adidas Share Price and Financial Information

- http://www.adidas-group.com/en/investors/share/share-price/

- http://www.reuters.com/finance/stocks/analyst?symbol=ADSGn.DE

- http://data.cnbc.com/quotes/ADS-DE/tab/1