FINANCIAL ANALYSIS
Revenue Growth
Adidas has experienced steady growth in revenue from FY 2013 to FY 2019, reaching a figure of €23,640
million in FY 2019, but in FY 2020, the company faced a steep decline of -22% in revenue, this could
probably happen due to the COVID-19 pandemic and factors relating to macro-economic disruption,
after the COVID-19 pandemic (Chaniago, 2021). In the period FY2013 - FY2019 the total revenue grew by
8.86% CAGR and revenue growth has been about -4.77% in recent 3 years (wsj.com, 2024).
Figure 1 Revenue Growth of ADIDAS AG
(Source: wsj.com, 2024)
Figure 2 Allocation of Net Revenue by Segmentation
(Source: report.adidas-group.com, 2022)
After the pandemic, in FY2022 Adidas has improved its sales significantly mainly consisting of sales
generated from Europe, The Middle East, and the African region, around €8,550 million. About €6,398
million of revenue is contributed by North America, €3,179 million by Greater China, €2,241 million by
the Asia-pacific region, and the remaining revenue of €2,110 million from Latin America
(report.adidas-group.com, 2022).
Gross Profit Margin
Figure 3 Gross Profit Margin of Adidas
(Source: report.adidas-group.com, 2022)
The Gross Margin shows how much percentage of sales is left after the deduction of the Cost of the
Goods Sold, measuring the profitability and efficiency of the company (Nariswari, and Nugraha, 2020).
The Gross profit margin for FY22 was 47.3%, which declined slightly from 3% compared to the last two
years (FY20-FY21), this can happen because of many factors such as Adidas discounting its product
heavily to compete with its rival or its slight rise the cost of inputs used in the production process.
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Although the company’s gross margin has declined over the recent financial year, it is also worth noting
that the gross margins of Adidas are relatively higher in contrast to other companies in the retail sector.
Operating Expenditures
1. Depreciation
At the beginning of 2021, Adidas had a total of Property, plant, and equipment amounting to €4,326
million, which includes Land and Buildings amounting to €1,852 million, Technical equipment and
machinery of €414 million, and other equipment (Li, and Hall, 2020). The Depreciation charged by
Adidas on all the P&E in FY22 was €1,220 million (11.89% of other operating expenses). All the
Depreciation and amortization are reported under the other operating expenses
(report.adidas-group.com, 2022).
2. Staff Expense
Adidas has increased its salary expenses by around 22.38%, In FY24 company reported total staff
expenses of €2,856 million including social security contributions of 276 (9.66% of total staff expenses),
and Pension expenses of 136 million (4.76% of total staff expense). The Staff expenses were €2,720
million in FY19, which reached €2,854 million, highlighting around 1.64% compounded annual growth
rate (report.adidas-group.com, 2022).
3. Marketing and point-of-sale expense
The Marketing and point-of-sale expenses was around €3,042 million in FY19 (13% of net sales) (Ptok,
Jindal, and Reinartz, 2018). Post covid, the promotion-related expenses decreased, In FY20 it was around
€2,573 million, €2,547 million in FY21, then the marketing and point-of-sale expenses again started to
rise (€ 2,763 million in FY22) and Marketing expense is expected to improve further, indicate Adidas
might introduce promotional strategies which can boost future revenue (report.adidas-group.com,
2022).
Cash Flow Statement Analysis
Adidas earned consistent profits but it is also important to analyze the cash position of the company to
make an appropriate investment decision (Soboleva, 2018). At the beginning of FY20, Adidas AG had a
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cash balance of €2,220 million which increased significantly by 80% at the end of FY20, then the liquidity
position started to decline reaching as low as €798 million in FY22. Examining the cash trends is not
sufficient, an in-depth analysis of cash used in different Activities is required (report.adidas-group.com,
2022).
Figure 4 Cash and cash equivalents at end of the period
(Source: report.adidas-group.com, 2022)
Cash Flow from Operations Activities
Adidas has reported €543 million as a net cash outflow from operations, which can be a concerning issue
for the company as there is the possibility that the company is experiencing a problem with cash flow
related to its business activities. In FY20 and FY21 company was able to generate a positive cash flow of
€1,486 and €3,192 respectively from core operations despite the economic disruption caused by
COVID-19, which shows companies ability to improve its cash position in the future
(report.adidas-group.com, 2022).
Cash Flow from Financing Activities
Adidas AG reported a net cash outflow of €2,963, mainly due to repayments of short-term and long-term
borrowings. By analyzing the cash flow statement, it figured out that the company is repurchasing the
treasury stock to regain its controlling interest and this will enable Adidas’s management to take action
without any friction that can lever the growth of the organizations (report.adidas-group.com, 2022).
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Cash Flow from Investing Activities
Over recent years, Adidas highly invested in trademarks and intangible assets pointing out that the
company may generate significant value by innovating new sports production which can provide Adidas
with a competitive edge over the competitors. Adidas also invested around €504 million in the Property,
plant, and equipment, indicating the company is going to expand its production capacity which will result
in the improvement of operational efficiency. In FY22 company had a net cash inflow of €495 million
mainly consisting of cash inflow from the disposal of discontinued operations (report.adidas-group.com,
2022).
Investing in Subsidiaries
After evaluating the financial statements of Adidas AG, a multinational sports company, it is figured out
that the organization has around 119 subsidiary companies holding majorly 100% of the controlling
capital (De Marchi, Cainelli, and Grandinetti, 2022). Among many subsidiaries, some prominent brands
are Runtastic, Reebok, Agron, etc. A US-based company of Adidas consists of 100% ownership interest
held by non-controlling interests in recent years, while Adidas Israel has a 15% stack owned by
non-controlling interest throughout FY20 -FY22 (report.adidas-group.com, 2022).
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RISK ANALYSIS OF THE COMPANY
As a sports accessories manufacturing company, Adidas is covered by various risks. Risk can be related to
the operations of the company known as Business Risk or risk can be associated with financial
management known as financial risk (Dvorsky, 2020). In another sense ‘Financial Risk’ is the additional
risk the equity holder of Adidas needs to bear for using Fixed debt capital.
Financial Risk Analysis
As mentioned above in the section on cashflow analysis, Adidas Group is consistently redeeming its
short-term and long-term debt helping the company to minimize its financial risk. Even though the
company had made the repayments on a timely basis, the company’s liquidity position also fell by 80% in
FY22 concerning cash balance and operating cash flow, indicating a weakened solvency that could be
alarming for the debt provider of the company. As a result, the debtholder may liquidate their positions
which will decrease the valuation of the company creating problems relating to fundraising for the
company.
Figure 5 Analyzing the Financial Risk of Adidas
(Source: Author)
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Other than the Liquidity and Solvency analysis, it is also important to consider the amount of leverage
the company is using to maximize its returns. The leverage of the company can be measured in two
ways, the degree of Operating Leverage shows the magnification effect of changes in sales on Operating
earnings, and the Degree of Operating leverage of Adidas is 3.15, implying if the Sales increase by 1%
then the operating profit (EBIT) will increase by around 3.15%. The Degree of Financial of financial
leverage shows the magnification effect of changes in operating earnings on net income. Adidas has a
financial leverage of 1.61, signifying that if the operating profit increases by 1% then the net income will
increase by 1.61% (report.adidas-group.com, 2022).
Business Risk Analysis
Adidas as a multinational corporation is exposed to various types of business risks that restrict the
company from accomplishing its goals, including various macroeconomic, sociopolitical, regulatory, and
geopolitical factors. The following points illustrate the business risks overview of Adidas:
Macroeconomic, sociopolitical, regulatory. And Currency
Consumer Spending and Consumer Spending play a very important role in the growth of Adidas as it
operates in the sporting industry. Having considered the geopolitical tension created by various nations
(e.g., the war between Ukraine and Russia & Israel-Palestine conflict). Adidas is a multinational company,
having subsidiaries around the world, Adidas is highly exposed to currency translation risk
(report.adidas-group.com, 2022).
Product Risks
The success of any sports product is dependent upon the continuous creation of innovative products
that match the consumer preference. Adidas is exposed to the risk of meeting unanticipated sudden
demand and recurring loss of revenue (report.adidas-group.com, 2022).
Personnel Risks
The company’s success majorly depends upon the efficiency and skills of the employees. Consider this,
important for the company to have strong leadership that motivates the employees to perform well to
boost the growth of the company. Adidas may suffer from poor leadership problems or poor connections
between employees, then it will be difficult to achieve goals (report.adidas-group.com, 2022).
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Business partner risks
As a company operating in the sports industry, Adidas ties up with various other sports teams, athletes,
and retail partners, Adidas is having the risk of multiple business partners, Overdependency on these
business partners can make the situation of the business vulnerable (report.adidas-group.com, 2022).
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