Adidas Company

The interpretations on the trends of the ratios for ‘Adidas Group’ tell the company’s performance for the past three years 2006, 2007, and 2008.
For the years 2006, 2007, and 2008, the debt ratio decreased from around 66% to 64%. But still this is a good percentage as the debt ratio is less than 1. Thus we can say that the company is not much dependent on money borrowed and has good equity position. The company would be in risk if this ratio is high. The current ratio has decreased from around 1.8 to 1.3 from year 2006 to 2008 which says that the company’s ability to pay for its short term obligations has reduced. If the ratio decreases furthermore, then the company would not be definitely in good financial position to pay the obligations back which are due at that point. The asset turnover ratio has decreased from 1.4 to 1.2 from the year 2006 to 2008. This is still a good number because the company still has good profit margins as the ratio is low which is almost near to 1. But it is better to have a high ratio. The profit margin has increased from 4.9 to 5.9 from the year 2006 to 2008, which indicates that the company has control over its cost and has more competitors and is giving good competition to its competitors in the market. The higher the profit margin percentage, the better is the company profit. The return on equity ratio has increased from 17.9% to 20% from 2006 to 2008 and this indicates that this company is gaining good profits from the money invested by its shareholders. The higher the ROE ratio, the profits are more to the company from the shareholders. The gross profit margin has increased from 44.5% to 48.6% from 2006 to 2008 which is a good indication that the company has sufficient resources. The better the gross margin, the better is the financial resources of the company. The price earnings ratio is very important for the companies in the same industry. The P/E ratio increases a little and then decreases drastically from 16.3 to 19 and then to 8 from 2006 to 2008, which is good for investing as it reduces the risk. As the ratio increases the expectation increases. The Accounts receivable turnover ratio has decreased from 8.4 to 7 from 2006 to 2008 which indicates that the firm is not efficiently utilizing its assets and the collection of accounts has decreased. The average collection period has increased from 43 days to 52 days from 2006 to 2008 which is not a good sign for the company as the days to collect the accounts is increasing. But as this is a company manufacturing various products, this can be varying from product to product. The inventory turnover ratio has decreased from 3.9 to 3 from 2006 to 2008 which indicates that the inventory turnover is low for the past three years which may be due to stock accumulation and slow moving of goods or over investment in inventories. This company needs to improve its inventory management. If the ratio is less, it may lead the company to low profits. Days to sell an inventory have increased from 92 to 119 days and this indicates that the stock is accumulated for a longer period of time due to improper management of the inventories. But still as this is a company with different products this may increase or decrease depending on the type of good. The Dividend payout ratio has decreased from 17.7 % to 15.3% from 2006 to 2008 but the ratio is almost the same for the last two years. This ratio is less as this company is a growing company and has good profits. So they pay fewer dividends. This decrease in the ratio tells that is company is gaining more profits.
Thus, the Adidas Company manufactures differentiated goods. From the above information it can be understood that, though it faces tight competition in the market, it maintains a good profit. It has many branches all around the world and has a good reputation in the world of sports.

References:
http://www.adidas-group.com/en/News/_downloads/pdfs/2009/Press_Release_Q42008_e.pdf
http://www.adidas-group.com/en/News/_downloads/pdfs/2008/2008_03_05_Q42007-e.pdf
http://www.adidas-group.com/en/News/_downloads/pdfs/2007/March7_Q42006-e.pdf