Adidas and Puma Overview
Company Background
Adidas AG
Adidas is a German-based organization that produces, develops, markets, and designs a variety of sports lifestyle and athletic products. The company was established in the year 1924 by Adolf Dassler and was headquarter in Bavaria, Germany. Adidas’s segments incorporate Europe, Russia/CIS, North America, Latin America, Adidas Golf, Asia-Pacific, Runtastic, Emerging Markets, & Other centrally managed business. Every segment contains wholesale, e-commerce, and retail business activities with respect to the sales and distribution of products to the end consumers and retail customers. Furthermore, the company has almost 2500 own-retail warehouses, shop-in-shops, co-branded stores, e-commerce channel, joint ventures with the retail partners, and mono-branded franchise warehouses which is accessible to consumers in around 50 countries.
Puma is a German-based multinational organization that manufactures and designs casual footwear and athletic, accessories and apparel, which was established in the year 1948 by Rudolf Dassler and is headquartered in Germany. The company’s segment contains Europe, EMEA (the Middle East & Africa), Asia/Pacific, and the Americas. It also offers performance and sport style products through six major business units: Teamsport, Listening, Accessories, Basketball, Golf, Training, Running, and Motorsports. Moreover, the company is also involved in the products sale from the COBRA and PUMA Golf brands through retailing and wholesaling trade, and sales directly to the users in its retail warehouses & online stores.
PEST Analysis of puma analyses or examines the brand on the business tactics. It examines the different external components such as political, eenvironmental, technological, and social factors which influences its business (Leibowitz et al. 2018). Thus, this framework highlights the various extrinsic situations which influences the businesses brand. The following PEST Analysis of Puma are discussed and mentioned below:
- Political Factors:These forces may have a critical impact on the international businesses. Thus, brands with operations through numerous countries must consider this factors & their possibility on their business while forming and developing business strategies for specific markets. Around all over the world, the different markets political environment might have a direct influence on the economic environment & which ultimately turns on the international business’s performance. Modifications in the geopolitical events or political environment may also influence business & supply chain operations.
- Environmental Factors:These forces may also have the strong influence on the financial performance and business operations if international businesses. Factors such as inflation and GDP influence business performance & this is the only reason investors consider these components vital (Hernández-Ramírez et al. 2017). Thus, the investors of stock market consider the growth annually in GDP in order to be crucial meanwhile if an economic output weakens or remains consistent over a significant period, most firms cannot increase their net profits. Likewise, 1-2% inflation is good for the firm.
- Social Factors:Sociocultural forces also having a progressively considerable influence on the international business with respect to marketing and operations. Enhanced understanding of sociocultural forces assists marketers and businesses in understanding their target market efficiently and deliver enhanced offerings & promote their businesses effectively. Globally the people’s preferences and tastes may differ as per their culture and society. Therefore, there are huge number of brands that are both universal and global with respect to style & attract & whose magnetism does not reduce across cultures or society.
- Technological Factors: This force is considered to be one of the leading components that are driving the industries growth globally. For a huge number of brands across different sectors, technology is the foremost source of competitive edge and a primary urge of market and growth expansion. Even in the industry of sport shoes, the emphasis on the digital technology has developed. Apart from the digital marketing, distribution, and sales channels, Puma is also devoting in the digital technology in other approaches of its operations incorporating supply chain management in order to develop its businesses faster.
Puma’s SWOT Analysis analyses the brand regarding its strengths, weaknesses, opportunities, and threats (Griffin and Mahajan 2019). In this framework, the strengths & weaknesses are considered to be an internal component while on the other hand, opportunities & threats are considered to be external components. Thus, it is an established management tool which allows a brand to benchmark its performance & business in comparison to its competitors.
Puma has been observing the rate of hair growth. The company accomplished 12.8% increment in the net sales. This demonstrates a high growth rate of around 14.14%. Thus, this proves a healthy growth rate & now they are concentrating on increasing aggressively which may cause a higher growth or development in the future. Moreover, it also spends deeply in promoting or adverting its brand around all over the world through sponsorship. The company sponsors Borussia Dortmund, Arsenal FC, and MamelodiSundowns, Italy’s National Football, Ivory Coast, Uruguay and Olympic, and Ghana.
Various brands are accessible in the market & clients keeps on switching or changing brands. Thus, it has reduced brand loyalty between customers and the primary reason behind this is that the group has not differentiated its services or products from the modest brands. They are proposing the similar products at the lower cost (Djellabi et al. 2021). It is a well-known that Puma is the world’s most leading brand, but on the other hand its market share is inferior if one contrast it with other peers such as Nike, Adidas, and others. Hence, their inflating marketing share & affect are jeopardizing the firm’s market position.
PEST Analysis of Puma
Puma must consider in increasing the company’s product portfolio by adding more services or products. The product range must item other than the sports accessories. Hence, trends such as healthy diet, sporting activities, and exercising are inflating around all over the world. Various kinds of sports are famous in different countries (Robinson 2020). However, when any person plays games, they require accessories and sporting equipment. It totally brings up the Puma’s role, the company must be active in emerging countries. Puma must also launch sportswear and attire for women.
Counterfeit products are extremely common in the countries. They utilize the logo of Puma & sell inferior quality products or services at a higher price range. As a consequence, many customers cannot observe the notice & lose faith or trust in the firm after having a bad experience. Thus, the sportswear industry turns out to be competitive in current years. Now, clients have many selections in order to purchase the product of various brand. The puma’s competitors share market is inflating, it poses a plain threat to the group (TEXTS 2018).
Financial ratio analysis refers to a quantitative procedure of gaining understanding into an organization’s liquidity, profitability, and operational efficiency by reviewing its financial statements like income statement and balance sheet (Chen et al. 2016). Thus, financial ratio analysis is a foundation of the fundamental equity analysis.
The Adidas overall liquidity performance is determined by inspecting the current ratio & quick ratio for FY 2020 & 2019. Based on the financial accounting calculation, it has been noticed that the Adidas current ratio pertaining to 2020 and 2019 stands at 1.38 times & 1.25 times, indicating that the company has adequate liquid assets or cash to cover all the current debts. The primary reason behind this is that the value of total current assets exceeds the total value of current liabilities (Ahmed 2020). Higher metric is more favourable than the lower metric as it indicates a positive sign for the company. Whereas, on the other hand, the quick ratio of Adidas for 2020 and 2019 is calculated at 0.88 times and 0.78 times, suggesting that the group is not reliant on its current assets (inventory) in order to meet all the short-term or current obligations. However, when it is compared to Puma, it has been observed that both the companies are in the same position with respect to liquidity position as both Puma and Adidas have enough liquid assets to meet all the short-term debts with its existing current assets.
The profitability position of Adidas is decided by scrutinizing the net profit margin & operating profit margin for FY 2020 & 2019. Based on the financial accounting ratio computation, the Adidas net profit margin decreases significantly to 2.23% in the current year from 8.36% in 2019, implying that the company has make less money from its existing net revenue and is quite ineffective with respect to creating net income. The main reason behind this is that because of the higher COGS (cost of goods sold). Lower net profit margin implies that Adidas may utilizes an inefficient cost structure or poor pricing strategies. Thus, this might happen because of high costs, ineffective management, and weak pricing strategies. Moreover, the operating profit margin also reduced 3.78% in 2020 from 11.25% in 2019, suggesting that the company has not uses its net revenue efficiently regarding generating net income. Whereas, when it is compared to Puma, Adidas is at par in generating as its value is higher and has also generated more earnings from its available net revenue. With respect to profitability performance, both the companies are in the same position in the current year in comparison to prior year.
Puma’s SWOT Analysis
The overall operational efficiency performance of Adidas is decided by examining the asset turnover ratio & inventory turnover ratio for the financial years 2020 and 2019. On analysing the asset turnover ratio of Adidas, it has been noticed that there is a marginal reduction in the current year to 2.27 times as compared to 2019, implying that the company is holding its stock longer than what it has been measured previously (Williams and Dobelman 2017). Hence, lower turnover indicates weak sales & possibly excess inventory which is also referred as overstocking. Whereas, the asset turnover ratio also reduced to 0.94 times in 2020 from 1.14 times in 2019, indicating that the company is not utilizing its total assets effectively and might have internal issues. Thus, the metric is improved by increasing net revenue and the asset may use be proper, but on the other hand the sales can be slow, causing lower asset turnover ratio. Hence, when it is compared to Puma, it can be seen that the company is not at par as its value is lower than Puma. In addition, Puma has generated more net revenue from its total assets in 2020 as compared to previous year.
The Adidas financial leverage or solvency position is determined by analysing or examining the debt ratio and interest coverage ratio for the financial years 2020 and 2019. On the basis of calculation, it has been observed that the company’s debt ratio stands at 0.68 times and 0.66 times, indicating that there is a slight increment in the financial risk or leverage which is quite unfavourable to the company (Mohd Khairi 2021). Furthermore, the interest coverage ratio reduced to 3.83 times and 16.41 times, implying that the burden of debt is high and has a greater possibility of default or bankruptcy. On the other hand, Puma’s debt ratio has also increased to 0.62 times in 2020 from 0.56 times in 2019, implying that more amount of assets is being financed via debt which implies that the creditors have more rights on the asset of a company (Monahan 2018). Its interest coverage ratio is also reduced to 2.54 times in 2020 from 9.10 times in 2019, suggesting that Puma cannot cover all of its interest payments & that the company is vulnerable to inflates in the interest rates.
Conclusion
Based on the above discussion and analysis mentioned in the report, it can be concluded that financial ratio analysis has been utilized to evaluate the overall financial performance and position of Puma and Adidas. However, the financial performance of Puma has deteriorated its overall financial position and must maintains all of its costs considerably. But it must improve its profitability & efficiency positions by clearing all of his dues or current debts quickly. Hence, Adidas is not recommended to acquire Puma as it is clear evident from the financial results.
References
Ahmed, A., 2020. A Project Report On Strategizing Sales And Marketing Ecommerce.
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Djellabi, R., Giannantonio, R., Falletta, E. and Bianchi, C.L., 2021. SWOT analysis of photocatalytic materials towards large scale environmental remediation. Current Opinion in Chemical Engineering, 33, p.100696.
Griffin, P.A. and Mahajan, S., 2019. Financial Statement Analysis. Finding Alphas: A Quantitative Approach to Building Trading Strategies, pp.141-148.
Hernández-Ramírez, K.C., Chávez-Jacobo, V.M., Valle-Maldonado, M.I., Patiño-Medina, J.A., Díaz-Pérez, S.P., Jácome-Galarza, I.E., Ortiz-Alvarado, R., Meza-Carmen, V. and Ramírez-Díaz, M.I., 2017. Plasmid pUM505 encodes a Toxin–Antitoxin system conferring plasmid stability and increased Pseudomonas aeruginosa virulence. Microbial pathogenesis, 112, pp.259-268.
Leibowitz, B.J., Yang, L., Wei, L., Buchanan, M.E., Rachid, M., Parise, R.A., Beumer, J.H., Eiseman, J.L., Schoen, R.E., Zhang, L. and Yu, J., 2018. Targeting p53-dependent stem cell loss for intestinal chemoprotection. Science translational medicine, 10(427), p.eaam7610.
Mohd Khairi, H., 2021. Technology Entrepreneurship Project (ENT 600): Puma Group.
Monahan, S.J., 2018. Financial statement analysis and earnings forecasting. Foundations and Trends® in Accounting, 12(2), pp.105-215.
Robinson, T.R., 2020. International financial statement analysis. John Wiley & Sons.
TEXTS, I.A., 2018. Financial statement analysis. Instructor.
Williams, E.E. and Dobelman, J., 2017. Financial statement analysis. Quantitative Financial Analytics. London: World Scientific, pp.109-69.
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