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Fundamental of Finance Assignment

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Added on  2021-06-08

Fundamental of Finance Assignment

   Added on 2021-06-08

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SNHU 19E1FINANCIAL ANALYSISPAPERPUMA and ADIDASPHẠM KHÁNH LINH – NGUYỄN PHƯƠNG ANH – NGUYỄN THỊ NGỌC LIÊN – TRẦN THỊ HỢP[This document is used for Fundamental of Finance Assignment]
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1 | P a g eAN ANALYSIS OF PUMA AND ADIDASFINANCIAL RATIOSTable of contentsA.Sportswear IndustryB.Financial RatiosC.Stock PriceD.Conclusions E.Appendix
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2 | P a g eA.SPORTSWEAR INDUSTRY:The European sportswear industry, one of the biggest blocs, comprises over 21,000 companies that employ 278,000 employees, generating €27.5 billion in turnover annually. European Confederation of theFootwear Industry (CEC) chairman Luis Onofre asserts, “The fact that nine European countries rank among the top 15 world exporters is a clear indicator of the success of European footwear products at the global level.”The dynamics and buying preferences to a certain extent are singular and peculiar to each market block. In Europe, the “quality” factor is almost a leitmotif, and personalized and differentiated footwear has beenin high-demand for quite some time now.German footwear market is also inherited characteristics of its bloc.The two major sportswear and sports footwear industries in Germany are Adidas and Puma. These two were owned by brothers Adolf Dassler and Rudolf Dassler where after the relationship between the brothers deteriorated they decided to part ways in business, Adolf went on to open Adidas while Rudolf established Puma. These two companies compete with each other internationally and are the most vibrant current trend setters in the industry in Germany.Globalization, as in any other industry the world over, has definitely impacted the sports footwear industry in Germany. Leading companies in the production of sports footwear have been forced to relocate internationally to take advantage of key opportunities internationally.Globalization helps a firm to spread political and economic risk whereby, joint ventures have become widespread as a way of meeting the need to tap the international market, technological knowledge, designand skills.Some of the major competitors of Adidas and Puma such as Nike relocated to countries in Asia such as Thailand and China exclusively because of low labor cost in these countries comparative to those of firm’s country of origin.This has translated to low operating costs for these firms hence they are able to lower the price of their products comparative to that of its competitors which in turn has given such firms an extra edge over theircompetitors in terms of pricing. This means that such companies will chip away at some of Germanys’ leading producers of sportswear market share.
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3 | P a g eEntry barriers into the sportswear market are relatively few. This scenario has led many investors trying their luck in the lucrative sports footwear industry.Consequently, the market has become fragmented due to a lot of competitors entering the industry and as result, the market share of leading producers of sports foot wears are gradually loosing their market to their ever increasing competitors. In turn this has prompted leaders in the industry of sports foot wear to shift their focus to acquisition of additional brands merging with other firms in an effort of consolidating their position as leaders of this lucrative industry.By taking a deep dive into PUMA and ADIDAS operating results, we expect to be informed about sport wear market and its characteristics. We also expect to comprehend how these corporations manage their assets, liabilities, capital, and how investments and financial activities are performed by working on their financial reports.As the two corporations have a close relation with each other, we decided to study them as a main subject (PUMA) and a standpoint (ADIDAS) for comparison. This report presents a financial analysis of the sportswear company PUMA bycomparing different financial ratiosover time and with its competitor. It furtherreviews PUMA’s position in the financial markets and evaluates returns in relation tothe level of risk associated from an investor perspective.
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4 | P a g eB.FINANCIAL RATIOS ANALYSIS:1.Liquidity ratios:1.1 Current ratio:Currentratio=CurrentAssetsCurrentLiablities20202019PUMAADIDASPUMAADIDASCurrent asset2,613.0012,154.002,481.2010,934.00Currentliability1,872.808,827.001,558.908,754.00Current ratio. 1.401.381.591.25-In 2020For each Euro of current liability, PUMAcompany has 1.4Euros of its current assets to convert into cash to pay current liabilities.For each Euro of current liability, ADIDAS company has 1.38Euros its current assets to convert into cash to pay current liabilities.-In 2019For each Euro of current liability, PUMA company has 1.59 Euro its current assets to convert into cash to pay current liabilities.For each euro of current liability debt, ADIDAS company has 1.25Euro its current assets to convert into cash to pay current liabilities.-PUMA: A quick analysis of the current ratio tellsyou that the 2020 company's liquidity had slightly decreased compare with 2019, from 1,59x to 1,39x. -ADIDAS: A quick analysis of the current ratio tells you that the company's liquidity had improved between 2020 and 2019 since it rose from 1.249X to 1.377X.-Comparision : Puma’s current ratio (1,395x) is greater than Adidas’s current ratio(1.377x) proves that Puma’s liquidity is better (2020) . This shows that Puma has *€ in million
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5 | P a g emanaged their liabilities and short-term assets more effectively (PUMA's current ratio relative to ADIDAS's is almost equivalent in 2020.)-With this competitive difference between their Current Ratios, investors will face a give-and-take situation while creditors like to see high current ratio, shareholders commonly okay with lower Current Ratio because that means probably not a surplus of unused inventories and inefficiency in productivities. Therefore investors must carefully considerwhere to fall in this particular ratio.POSITION: Moderate1.2 Quick/Acid Test Ratio:Quickratio=Currentassets−InventoriesCurrentliablities20202019PUMAADIDASPUMAADIDASCurrent Asset-Inventories( 2,613.00-1,138.00)12,154.00-4,397.00)(2,481.20 –1,110.20 )(10,934.00 –4,085.00)Currentliabilities1,872.808,827.001,558.908,754.00Quick ratio 0.790.880.880.78-In 2020For each Euro of current liability , PUMAcompany has 0.79 Euro its current assets to convert into cash to pay current liabilities.For each Euro of current liability , ADIDAScompany has 0.88Euro its current assets to convert into cash to pay current liabilities.-In 2019For each Euro of current liability, PUMA company has 0.88 Euro of its current assets toquickly convert into cash to pay current liabilities.For each Euro of current liability, ADIDAS company has 0.78 Euro of its current assets to quickly convert into cash to pay current liabilities.-PUMA: A quick analysis of the current ratio will tell you that the company's quickliquidity has gotten just a little bit worse between 2020 and 2019.*€ in million
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