Investment Analysis: Strategies for Adidas Company Shares

This report presents an in-depth investment analysis, primarily focusing on the Adidas company. It begins with an introduction to investment analysis, followed by a detailed examination of various investment strategies applicable to Adidas, including an assessment of financial statements, financial and non-financial risks, and share price performance over a five-year period. The report further explores investment strategies based on funds and macroeconomic factors, such as production, consumption, investment, monetary and fiscal policies, and the distinction between consumable and capital goods. A discounted cash flow technique is also utilized to evaluate the company's investment potential. The report concludes with a comprehensive overview of Adidas's financial performance, including sales, net income, and dividend growth, alongside an assessment of its position in the market. This analysis aims to provide a comprehensive understanding of investment opportunities and the factors influencing them.

Investment Analysis
Investment Analysis
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Contents
Introduction...........................................................................................................................................3
Solution 1: Investment Strategies in company......................................................................................3
Solution 2: Investment Strategy based on funds...................................................................................6
Solution 3 : Investment in Shares Short Treasury Bond ETF................................................................18
Conclusion:..........................................................................................................................................20
References:..........................................................................................................................................21
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Introduction
The project assigned to me is based on the analysis which is done before investing in
any company. Various factors have been considered while investing in a market like
last year shares prices, dividend payout ratio, financial and non-financial risks and
check historical return on investments by discounted cash flow techniques or end
value with dividends carried forward with a given interest rate. The project also
includes assets allocation in shares, bonds, commodities, cash by using best
investment strategies. I decided to choose Adidas company which indulge in
designing and manufacturing of shoes, clothing and accessories because this
company have good name in sports sector and its dividend payout ratio is increasing
in consistent manner. Apart from all this company have sustainable amount of
revenue.
Solution 1: Investment Strategies in company
I have considered following strategies before investing in Adidas Company.
i) To collect and analyse the financial statements of last 5 years from accounting
period March 31, 2013 to March 31, 2017.
ii) To consider the financial and non-financial risks associated with it.
iii) To evaluate its share prices of last 5 years from the stock market and compare it
with today’s share price.
iv) Various forms in which investments can be done.
A) Brief of Company:
Adidas is Germany based company which is listed in Dow Jones Industrial Average
stock market with 29 other companies. It was started in 1886 and presently under the
leadership of Kasper Rorsted as its CEO.
This company is engaged in the manufacturing of sports materials. The company has
first position in the world in manufacturing of sportswear.
Investors and social responsibility investment funds check the ratings given by CHRB
before taking any decision. Now, Adidas has been moved to 5th position after giving 4
positions in the 2017 pilot.
In the third quarter of 2018, Adidas revenue increased by 8 % through currency
hedging process. According to one of the channel, there is huge increase in sale of
products directly sold to consumers. Company’s revenue has increased by 3% in 2018
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(3rd quarter) as compared to 2017 (3rd quarter) in Euro’s. They is double digit growth
in its training and running segment.
Adidas deals in variety of products. It deals in sportswear, apparel and accessories. In
the sportswear field it covers the various sports activities like Baseball, Basketball,
Cricket, Golf, Running, Tennis, Kabaddi etc.
B. Performance of Company:
According to CEO Kasper Rorsted, 2018 have played a key role in achieving there
long term targets. By 2020, company profitability will increase by improving product
quality and soon company will make new long term targets by achieving old one
(Kenton, 2018).
Adidas have strong financial performance in last five years. Its sales are increasingly
continuously as compared to last years with good percentage. Its sale is increasingly
at double digits rates in almost all regions including e-commerce platform. Apart from
this company have sustainable amount of non operating income. Its sales are
increasingly in upper direction which shows that company have long future stability
in market and will earn healthy amount of income. Its net income is 5.1% of its sales
which is good sign that if anyone invest in this company, he will get good amount of
return.
2013 2014 2015 2016 2017
0
5
10
15
20
25
0.787 0.558 0.680000000000001 1.08 1.35
Chart Title
Sales
Gross Income
Net Income
Company share prices have increased from last 5 years. In 2013 its share prices are
closed on 45.84 while in 2018, its shares prices are closed at 110.82. Recently its
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share prices are 114.83. According to the last trend, it will be beneficial to invest in
these company shares to earn good return on investment.
Company is paying dividend from last 5 years. . Dividend per share growth rate was
10.10% of last 3 years while it was 12% in last 5 years. By company’s good
performance its average dividend growth rate of last year is 30% , which is very high
from last years . During the past 10 years, the average Dividends per Share Growth
Ratewas19.10%per year.
2013 2014 2015 2016 2017
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Chart Title
Dividend Column1 Column12
C. Discounted Cash Flow Technique:
It is a technique used to calculate the present value of future cash flows. The present
value of money is calculated by using the time value of money. In this thechnique
future cash flows are calculated on the basis of discounted rate. Discounted is based
according to inflation rate.
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Solution 2: Investment Strategy based on funds
Investment in any company depends on many factors like company financial
performance, rate of return, last year’s dividend, amount of funds, how much risk an
investor can bear, duration of investment. When anyone investment in company, it
check all the risk involved and then choose its portfolio. They are various ways to
invest in a company like by purchasing shares, invest in mutual funds, by providing
debt to the company with each of their merits and demerits. (Kennon, 2018)
Macroeconomics
Macroeconomics is one of the branches of economics which deals with country’s
economy. It consists of many things like national income, factors of unemployment,
gross domestic product, fiscal policy, how products prices are determined, inflation
and its effects.
Now we discuss the concept of macroeconomics
i) Production
a) Goods and services both comes in the production criteria. Its not only goods
have its contribution in production, services play an equally role. Sometimes
without services, goods have no value. For example - mobile phones are the
goods but when telecommunication network is provided to this device then only
handset is useful otherwise not.
b) Services which family members provide among themselves also come under
the purview of production. But they are not valuable and quantifiable so they
are not considered in production for practical purposes.
c) Similarly services of growing fruits and vegetables are also not considered in
the definition of production.
ii) Consumption
a) Consumption means to consume goods and services. Both are involved in
consumption activity. For ex- when we take coaching services then we are
consuming services. When we purchase stationeries, then we are consuming
goods.
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b) After purchasing of goods the consumption process will take place.
c) This activity started after end up of production activity or to say occur
simultaneously. When goods are produced then only they are consumed.
iii) Investment
a) Investment not only to invest financially. When goods are produced, they are
not consumed wholly. Some is stored for future use as whenever prices will rise,
will get more benefits.
b) All capital goods are part of investments like building, plant & machinery,
motor vehicles, equipments.
c) Likewise, in factory when we purchase raw materials, all material is not
consumed is not converted into finished goods. Some are held as stock only
to be used for future use. They are come under investments term.
d) Investment is done to get future benefits of present activities.
Inter relation of production, consumption and investment process are :
a) All these three process are inter related such that if one process is effected, other
two will automatically effected.
b) Started with production, it is the basis of consumption and investment. If we
produce more, we will consume more and also invest more.
c) Consumption effects both production and investments. The scale of consumption
determines the production level and investment criteria. If we don't consume anything
then there is no need for production as well as for investments. As goods and services
which are not consuming, no need to produce them and also to invest in them.
d) Investments decide the criteria of level of production. If they is more investments,
they is more production .
e) People don't spend all their income, some income is saved for investments. If they
is more savings, they will be more investments and if they is more investments, they
will be more production and consumption also.
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Investments comprises of two things.
i) Stock Investment - When the goods are produced in a factory, these goods may be in any
form like raw materials, work-in-progress and finished goods. The stock in that form can be
called as stock investments. It may be possible that all the goods cannot be consumed. That
would result in generation of closing stock. There may be a difference in opening inventory
and closing inventory. Such amount of difference is considered as investment in stock.
Sometimes disinvestment also held when consumption is more than production.
ii) Fixed Investments - When investments are done on fixed assets to run the production is
called fixed investments. For ex- equipments, machines.
All these above two investments are in goods terms.
Now, Total investments = stock investments + fixed investments
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Consumption Expenditure and Saving
Wages, salaries, rents, interests and profits earned by an individual has two
alternatives: Consumption Expenditure and Saving.
1. Consumption Expenditure: Every person has its own needs and that is required
to be fulfilled. The person earns income to satisfy his own needs. The expended
amount to get such goods is called as consumption expenditure.
2. Saving: The person also needs saving. It is very clear that the amount remain in
hand after expending the money earned, is called his saving. As such, saving is the
portion of income which is in excess of expenditure.
3. Saving = Income – Consumption Expenditure
4. Why do people do save?
a. There are lot of problems in human life i.e. diseases, children education etc. To
mitigate these problems one need to save the money.
b. The person earns income but he always wants to earn more income by investing
it. Thus, the person saves the money or he either lends it or invests it for generating
additional income (Thune, 2019).
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Some important basic terminologies in macro economics
Monetary Policy
The monetary policy is the policy in which economy is controlled by supply of money.
The central bank plays a vital role in the management of monetary policy. The monetary
policy determines the amount of money in the economy so that relevant decision can be
taken for the economic growth. This policy also helps in strengthen the currency of the
country.
Fiscal Policy
The fiscal policy is the sub-set of monetary policy. By this policy country’s economic
growth is managed by the spending and taxation rates. The fiscal policy is entrusted to
develop a healthy environment in which economic growth of the country can be ensured.
Better economic growth of the country would result in reduction in unemployment. It
will also result in optimise inflation rate.
 Finished Goods
Enterprise produces the goods for the consumption of the goods by the end
users. The goods pass through the various processes. Firstly, raw material is
processed and it is converted into various forms like semi-finished or finished
goods. The semi-finished goods are further processed for the final use thereof.
Whenever the finished goods are ready for the final consumption by the end
users then it can be considered as final goods.
We can divide the final goods in two categories: i) Consumable goods and ii)
Capital goods.
a) Consumable Goods
• Consumable goods are those goods which cannot be processed further. In
other words we can say that final goods which are consumed directly by the
consumers can be called as consumable goods. Examples of the consumable
goods can be Fridge, Cloths, Stationeries, Television, Laptop, Mobile etc.
• Consumable Goods can be of two types: i) Durable Goods, ii) Non-Durable
Goods
• Durable Goods: There may be a possibility that some goods cannot be
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consumed directly i.e. these goods are used again after first use. Such types of
goods are called as durable goods. For examples: Vehicles, Electronic Items,
Cloths, Furniture etc.
• Non-Durable Goods: There are some types of goods which are consumed
and after that consumption they cannot be consumed again. Mainly, these
goods are food items. For examples: Food, fruits, coal, etc.
b) Capital Goods
• Capital goods are different from the consumable goods. These goods are not
for direct consumption by the end consumers of goods. These goods are
generally used for the production of consumable goods. The enterprise
manufacturing the consumable goods require the machineries, plant and
equipments. These machineries, plant are capital goods to the manufacturers
and these are not for end consumption. The nature of these goods is durable.
For examples: Building, machineries, plant etc.
• Capital Goods are the fixed assets of the manufacturers and these assets used
by the enterprises for the production of consumable goods as well as fixed
assets also. Capital goods are depreciated because of use over the period of
time.
c) Intermediate Goods
• Goods which are used by the enterprises to produce the other goods are called
intermediate goods. In another words, it is very simple concept that goods is
produced by the another goods and these another goods are intermediate goods.
For examples: Iron Rods are sold by the manufacturer to the dealer. The dealer
sold it to the builders for the use of building. Thus, Iron rods are intermediate
goods.
d) Depreciation
• As we know the fact that every item has its useful life. Some items have long
useful life and some has short useful life. The use of these assets depends on the
change in technology over the period of time. Sometimes such use of the assets is
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at lower side either due to its wear and tear or due to technological changes. Thus,
decrease in use of the assets is called as Depreciation.
Ways of Investment
1. Shares
Shares are the portion of capital which is offered by the company to the investors for
the investment in the company. These investors can get dividend in the form of return
on their investments. Investors can sale and purchase the shares of the company.
Advantages
1. Investors are entitled to receive dividend which is one of the main source of
return on investment.
2. When these shares are sold they is they is capital gain
3. They are entitled to receive right shares and bonus shares whenever company
declared.
4. At the time of liquidation, shares can easily transfer their ownership.
Disadvantages
1. Dividend is not fixed. It depends on the profitability of the company, if they is loss
they will be no dividend.
2. The greatest element of risk is involved in it.
3. They have limited control over the assets of the company.
4. At the time of liquidation, they have residual claim over the assets of the company.
2. Bonds
Bonds are generally loan to government and are considered a very good investments
for those who want steady return.
Advantages
1. Fixed rate of interest.
2. Principal amount received on maturity.
Disadvantages
1. Price of the bond fluctuates.
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2. It may be possible that bonds have to sell by incurring losses.
3. Commodities
Investors can earn return on investment through trading in commodity market. In this
market no physical delivery of the product takes place. All the settlement is done
online.
Advantages
1. It gives an exposure to different markets.
2. It adjusts all the losses against stock and bonds.
3. It does not have any effect of inflation; rather it gets benefit of inflation.
Disadvantages
1. They are very volatile assets as compared to stocks.
2. They don’t generate any income.
Investments in Mutual Funds & ETF
Mutual Funds
A mutual fund is formed when capital collected from different investors is invested in
company shares, stocks or bonds. Shared by thousands of investors, a mutual fund is
managed collectively to earn the highest possible returns.
Mutual Funds can be divided in three parts:
a) Equity funds
b) Debt Funds
c) Hybrid Fund i.e. Combination of Equity and Debt Fund.
Equity Funds
Equity funds invest money collected from individual investors into shares of different
companies. When the price of the share rises, the investors make a profit and vice
versa. They are suitable for those who stay invested for a long time and who have a
higher risk appetite.
Debt Funds
Debt funds invest in fixed income government securities like treasury bills and bonds
or reputed corporate deposits. It is less risky than equities.
Debt funds are suitable for people who are risk-averse and looking at a short
investment horizon.
Hybrid Funds
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It funds invest in both equity and fixed income funds to balance the risks and maintain
a certain return rate.
Exchange Traded Fund
An exchange-traded fund is a marketable security. It is the fastest growing investment
alternatives in the market history. The main reason of the growth is that it generates
the higher return in comparison to another investment options. It is said that it keeps
its eyes over the number of assets and deals with the most beneficial stock. Exchange
traded funds are different from the mutual funds. Exchange traded funds are cheaper
than the mutual funds as its fees are lower than the mutual funds. As such, it is more
attractive to the investors (Kennedy, 2019).
In addition to above, number of exchange traded funds is providing the hedging and
speculation options to the investors by which investors can minimize his loss.
Exchange traded fund invest in various assets like bond, shares or other assets.
Examples of ETF
Birla Sunlife Gold ETF
SBI ETF Nifty Bank Fund
Kotak PSU Bank ETF
ICICI Prudential Nifty iWIN ETF
Difference between Mutual Funds & ETF
1. Mutual Funds are traded at the closing net asset value while Exchange Traded
Funds are traded during the course of a trading day and its value varies during this
time.
2. Mutual Funds have varying operating expenses while ETF has lower operating
expenses.
3. Most Mutual Funds have a minimum expense specified but there is no minimum
investment specified for Exchange Traded Funds (Weil, 2018).
4. Mutual Funds have more tax liabilities than ETFs. ETFs offer tax benefits to the
investors due to the manner of its creation and redemption.
5. The units under mutual fund can be purchased at the NAV price. While, exchange
traded fund units can be purchased and also be sold at the price prevailed in the market.
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6. Generally, compared to ETFs, the transaction costs are zero when mutual fund shares
are bought or sold. There is an additional cost involved while trading ETFs, which is
called the “bid-ask spread”.
7. Mutual Funds have lower liquidity compared to Exchange Traded Funds. ETF has
higher liquidity since it is not connected to its daily trading volume. ETF liquidity is
related to the liquidity of the stocks included in the index.
8. Some mutual funds levy a penalty on selling the share early. Usually, the time limit
imposed on selling a share is 90 days from the date of purchase. ETF do not have a time
limit on selling an asset. The investor can buy or sell at any point of the trading day at
the price available during the time. Therefore, there is no minimum holding period
specified for the same.
9. Mutual Funds are index-tracking but is actively managed by professionals. Assets are
picked in such a way that it beats the index and achieves higher performance. Exchange
Traded Funds track an index, i.e., it tries to match the price movements and returns
indicated in an index by assembling a portfolio which is similar to the index
constituents.
Diversification in portfolio
We can invest in both mutual funds and ETF. We have to invest in these after considering
pro and cons of both. In these investment is done for long term period to gain sustainable
amount of profit. I would like to invest in fifty percent in mutual fund and fifty percent in
ETF because it is better to have diversification (Doyle, 2018). More diversification means
less risk and vice versa.
Ddiversification with mutual funds is a means of reducing total portfolio risk buy
holding funds that represent different categories and asset classes. The sage wisdom in
the phrase, "don't put all your eggs in the same basket" does help describe the essence of
diversification because it simply illustrates the need to spread your risk into several
areas.
Put differently, if you put all of your money into one investment, you're probably not
diversified. But here's where investors often make their biggest mistakes with
diversification: They think that buy spreading their money among several different
mutual funds that their diversified. What if you put your eggs into different baskets but
all of the baskets are nearly the same? That's not diversified!
For a more specific example, let's say you allocate your savings equally to four different
mutual funds, where each holds 25% of your investment assets. Each fund has a different
name and therefore appears to have different objectives. Let's say one is a growth fund,
another is a growth and income fund, a third is an S&P 500 index fund, and a fourth is an
international fund. It is possible that the first three funds are nearly identical and that the
fourth one has many of the same holdings as the first three.
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Although you may have several different funds in your portfolio, the problem when some
of them have too many similarities is illustrated by the investment term, overlap. To
avoid overlap with mutual funds, be sure that your fund holdings are truly from
different fund categories.
For example, a simple four-fund allocation that is diversified could include one large-cap
stock fund, one small-cap stock fund, one foreign stock fund, and one bond fund. Each of
these will likely hold completely different securities, as compared to each of the other
funds. And notice I listed "foreign stock" rather than "international" stock. A foreign
stock fund will typically invest 80% to 100% of its assets in stocks of companies outside
the United States, whereas an international stock fund might have 50% or less of its
holdings in foreign stocks and the remainder in US stocks.
If you want to be sure you're getting the investments you want, a good idea is to use
index funds. For example, a foreign stock index fund like Vanguard European Stock
Index (VEURX) only invests in European stocks, not US stocks.
Solution 3 : Investment in Bond
The investment seeks to track the investment results of the ICE U.S. Treasury Short
Bond Index. The fund generally invests at least 90% of its assets in the bonds of the
underlying index and at least 95% of its assets in U.S. government bonds. The index
measures the performance of public obligations of the U.S. Treasury that have a
remaining maturity of equal to or greater than one month and less than one year
(Barbora, 2018). It may invest up to 10% of its assets in U.S. government bonds not
included in the underlying index, but which BFA believes will help the fund track the
underlying index.
Why SHV?
1. Exposure to U.S. Treasury bonds that mature in less than 1 year
2. Targeted access to a specific segment of the U.S. Treasury market
3. Use to customize your exposure to Treasuries
Annual Total Return (%) History
Year SHV
2018 1.74%
2017 0.65%
2016 0.43%
2015 -0.01%
2014 0.00%
2013 0.01%
2012 0.02%
2011 0.07%
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2010 0.14%
2009 0.21%
This bond is increasingly in high direction from last 5 years. At present it has highest
return. It is very right decision to invest in this bond and earn good rate of return.
Key facts
Net Assets $21,217,821,505
Exchange NASDAQ
Options Available Yes
Premium 0.02%
Closing Price (as on Feb 01,,2019) 110.37
Assets Class Fixed income
Daily Volume 5,633,231.00
There are four main statistics that track the yield of a bond ETF portfolio. They include:
 Yield to maturity. Yield to maturity is the average rate of the bonds available in an
ETF's portfolio. It is assumed that they were held until maturity. The average rate is
weighted average yield of all the bonds. As such, it reflects behaviour of the ETF's
underlying bonds, versus the ETF itself. Note that yield to maturity doesn't factor in
the fund's expenses, which means it may overestimate the yield that investors actually
experience. Plus, ETFs don't often hold the bonds in their portfolio until maturity,
making this estimate somewhat hypothetical.
 30-day SEC yield. 30-day SEC yield is calculated by annualizing the ETF's last 30
days of income, then subtracting fund expenses. By using the ETF's actual
distributions and expenses, it gives investors a real-world sense of how the ETF will
actually perform. However, because it's so short term, it's susceptible to being pushed
around by large, spiky distributions.
 Distribution yield. Distribution yield is calculated by annualizing the most recent
distribution—income, capital gains, etc.—then dividing by the ETF's current net asset
value (NAV). It's useful as a shorthand, given that it uses the fund's up-to-date NAV
and cash distributions that it's actually made. But distribution yield can also fluctuate
wildly should the size of an ETF's distributions spike up or down between payments.
Due to all these reasons, it is better to invest in government bonds and earn high rate of return
to hold these bonds till maturity.
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Conclusion:
Investment is made by one to get something return in the form of money. So it needs proper
strategies for investment purpose. The person going for investment, require basic knowledge
of the fields or he may take experts services. The investment analysis can be made through
various factors like shares, bonds, mutual fund etc. From the above discussion it is clear that
investment should be made in diversified manner so that wrong investment could not affect
the entire investment fund. Investment in bonds generates the regular income to the investors.
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References:
Barbora, L. (2018), The next-level passive equity strategy for ETF investors [Online]
Available from:
https://www.livemint.com/Money/WdGqJ3EMVgJEtY2dP4fREI/The-nextlevel-
passive-equity-strategy-for-ETF-investors.html [Assessed 08 February 2019]
Doyle, K. (2018), 8 ETF Investing Strategies to boost your portfolio [Online]
Available from: https://www.gobankingrates.com/investing/funds/etf-investing-
strategies-to-try/ [Assessed 08 February 2019]
Kenton, W. (2018), Gross Domestic Product [Online] Available from:
https://www.investopedia.com/terms/g/gdp.asp [Assessed 08 February 2019]
Kennon, J. (2018), Bond Investing Strategies for Long-term Investors [Online]
Available from: https://www.thebalance.com/bond-investing-strategies-for-long-term-
357420 [Assessed 08 February 2019]
Kennedy, M. (2019), 7 ETF Investing Strategies [Online] Available from:
https://www.thebalance.com/etf-investing-strategies-1214936 [Assessed 08 February
2019]
Thune, K. (2019), The Best Investment Strategies [Online] Available from:
https://www.thebalance.com/top-investing-strategies-2466844 [Assessed 08 February
2019]
Weil, D. (2018), 6 Common Investment Strategies of fund managers [Online]
Available from: https://www.bankrate.com/investing/6-common-investment-
strategies-of-fund-managers/ [Assessed 08 February 2019]
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