Business Administration

Faculty of economic and administrative science

Al-Azhar university – GAZA

RATIOS ANALYSIS FOR

ADIDAS

PREPARED BY /
AHMED M. SHALTOOT
OMAR Y. ALHAMARNA
MAHMOUD K. TUBAIL

UNDER SUPERVISION /
MR. NIZAR NAIM

2009-2010

ADIDAS
Income statement

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Currency in Income statement Dec 31 Dec 31
Millions of Euros 2009 2008
EUR Reclassified
EUR
Revenues 10,084.0 10,381.0
TOTAL REVENUES 10,084.0 10,381.0
Cost of Goods Sold 5,589.0 5,669.0
GROSS PROFIT 4,495.0 4,712.0
Selling General & Admin Expenses, Total 1,592.0 1,376.0
Other Operating Expenses 2,012.0 2,796.0
OTHER OPERATING EXPENSES, TOTAL 3,604.0 4,172.0
OPERATING INCOME 891.0 540.0
Interest Expense -184.0 -138.0
Interest and Investment Income 37.0 16.0
NET INTEREST EXPENSE -147.0 -122.0
Currency Exchange Gains (Loss) 2.0 -25.0
Other Non-Operating Income (Expenses) -13.0 -3.0
EBT, EXCLUDING UNUSUAL ITEMS 733.0 390.0
Impairment of Goodwill -- --
Gain (Loss) on Sale of Assets 1.0 3.0
Other Unusual Items, Total -11.0 -35.0
EBT, INCLUDING UNUSUAL ITEMS 723.0 358.0
Income Tax Expense 227.0 113.0
Minority Interest in Earnings -13.0 --
Earnings from Continuing Operations 483.0 245.0
NET INCOME 483.0 245.0
NET INCOME TO COMMON INCLUDING EXTRA ITEMS 483.0 245.0
NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 483.0 245.0

Balance sheet

Currency in Balance sheet Dec 31 Dec 31

Millions of Euros 2009 2008

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 EUR Reclassified
EUR
Assets    
Cash and Equivalents 311.0 775.0
Short-Term Investments 65.0 58.0
Trading Asset Securities -- 75.0
TOTAL CASH AND SHORT TERM INVESTMENTS 376.0 908.0
Accounts Receivable 1,415.0 1,429.0
Other Receivables 158.0 173.0
TOTAL RECEIVABLES 1,573.0 1,602.0
Inventory 1,607.0 1,471.0
Prepaid Expenses 213.0 208.0
Other Current Assets 156.0 296.0
TOTAL CURRENT ASSETS 3,925.0 4,485.0
Gross Property Plant and Equipment 1,187.0 1,480.0
Accumulated Depreciation -498.0 -757.0
NET PROPERTY PLANT AND EQUIPMENT 689.0 723.0
Goodwill 1,516.0 1,478.0
Long-Term Investments 110.0 107.0
Deferred Tax Assets, Long Term 332.0 412.0
Other Intangibles 1,677.0 1,502.0
Other Long-Term Assets 130.0 168.0
TOTAL ASSETS 8,379.0 8,875.0
   
LIABILITIES & EQUITY    
Accounts Payable 752.0 1,166.0
Accrued Expenses 1,021.0 570.0
Current Portion of Long-Term Debt/Capital Lease 3.0 201.0
Current Portion of Capital Lease Obligations 3.0 1.0
Current Income Taxes Payable 283.0 194.0
Other Current Liabilities, Total 116.0 427.0
Unearned Revenue, Current 17.0 278.0
TOTAL CURRENT LIABILITIES 2,192.0 2,836.0
Long-Term Debt 2,578.0 1,579.0
Capital Leases 5.0 2.0
Minority Interest 8.0 5.0
Unearned Revenue, Non-Current 12.0 17.0
Pension & Other Post-Retirement Benefits 134.0 168.0

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Deferred Tax Liability Non-Current 522.0 433.0
100.0 64.0

Other Non-Current Liabilities

TOTAL LIABILITIES 5,551.0 5,104.0
Common Stock ( 150,000,000 shares ) 204.0 209.0
Additional Paid in Capital -- 722.0
Retained Earnings 2,199.0 3,350.0
Comprehensive Income and Other 425.0 -510.0
TOTAL COMMON EQUITY 2,828.0 3,771.0
TOTAL EQUITY 2,828.0 3,771.0
TOTAL LIABILITIES AND EQUITY 8,379.0 8,875.0

Financial ratio analysis

A. Liquidity ratios
1. Current ratio
= current assets / current liabilities
= 3,925.0 / 2,192.0
= 1.79 times
As we see the firm has less amount of liquidity to cover its own liabilities ,
so the firm doing really bad and it has to make more benefit from its own
assets so that its current assets will increase then its current ratios will be
nicer ( better ) .

2. Quick ratio
= ( current assets – inventory) / current liabilities
= (3,925.0 - 1,607.0 ) / 2,192.0
= 1.06 times
As we see the firm has less amount of liquidity to cover its own liabilities ,
so the firm doing really bad and it has to take maximum advantages from
its assets (except inventories ) to increase its current assets then its quick
ratios .

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B. Asset management ratios
1. Inventory turnover ratio
= sales/inventory
= 10,084.0 / 1,607.0
= 6.28 times
As we see the firm doing bad here because of its remain long time in the
warehouse so the firm manage its inventories in inefficient way . The firm
has to make inventories spend less times in shelves so that it will turn
rapidly to sales and then the inventories turn over ratios will increase .

2. Days sales outstanding

= accounts receivable / (sales /365)
= 1,415.0 / (10,084.0 / 365)
= 51 days
As we see the firm doing in inefficient way in collecting it’s a receivable
resulting from selling on credit . the firm can manipulate this situation by
modify its credit policy .

3. Fixed assets turnover

= sales / net fixed assets
= 10,084.0 / 689.0
= 14.6 times
As we see the firm use its net plant and equipment ( net fixed assets )
efficiently because its own net fixed assets contribute positively in its
sales .

4. Total assets turnover

= sales / total assets
= 10,084.0 / 8,379.0
= 1.2 times
As we see the firm manage its total assets negatively so its total assets
turnover ratio does not look good , the firm has to fix this situation by
minimizing its inventories then total assets will decrease so its total assets
ratios will be better off.

C. Debt management Ratios

1. Total debts to total assets
= total debts / total assets
= 5,551.0/ 8,379.0
= 66.2 %
As we see the firm has high financial leverage that mean from one hand
high risky shares or high risk of bankruptcy and from another hand high
return on shares (high profit) .

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 2. Times earned interest
= EBIT / interest
= 891.0 / 147.0
= 6 times
As we see the firm has high ability to cover its interest expenses from its
earning . so it's using its earning efficiently .

3. EBITDA Coverage ratio

= EBITDA + Lease payment / Interest + Principal
payment +
Lease payment
Sorry, there is unavailable information .

D. Profitability ratios
1. Net profit margin on sales
= net income / sales
= 483.0 / 10,084.0
= 4.8 %
As we see the firm has slightly low percentage because its sales not
efficiently enough contribute on its net income so the firm should manage
its cost of good sold ( COGS ) or its interest expenses .

2. Basic earning power ( BEP )

= EBIT/ total assets
= 891.0 / 8,379.0
= 10.6 %
As we see the firm does not use its total assets efficiently because its
generate less amount of EBIT so the firm can handle that by get rid of
unused assets .

3. Returns on assets ( ROA )

= net income / total assets
= 483.0 / 8,379.0
= 5.8 %
As we see the firm has low return on assets because its has low basic
earning power ( BEP ) and high interest expenses resulted from using
above average debt .

4. Returns on common equity ( ROE )

= net income / common equity

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 = 483.0 / 2,828.0
= 17.1 %
As we see the firm has slightly high on ROE because its use of debt, so the
firm do good .

E. Market value ratios

1. Price/earning ratio
earning per share = net income / common shares outstanding
= 483,000,000 / 150,000,000
= 3.22 €
Price/earning ratio = market price per share / earning per share
= 38.76 / 3.22
= 12 times
As we see the firm is risky and has weak growth prospect .
2. Price/cash flow ratio
Cash flow per share = net income + depreciation + amortization /
common
shares outstanding
= 483000000 + 0 + 0 / 150,000,000
= 3.22 €
Price/cash flow ratio = market price per share / cash flow per share
= 38.76 / 3.22
= 12 times
As we see the firm's future investments are mostly close to the red line
( poor future investment ) .

3. Market/ book value

Book value per share = total common equity / common shares
outstanding
= 2,828,000,000 / 150,000,000
= 18.85 €
Market/ book value = market price per share / book value per share
= 38.76 / 18.85
= 2.1 times
As we see investors are not willing to pay high price for book value per
share because they are not expect that firm will have high return on its shares
.