Financial Analysis of Adidas as a Competitor to Puma with CORE Approach

There is a total word limit of 3500 words(excluding appendices) for the entire assessment. You are advised to spend about 2750 words on case A and 750 words on case B

The scenario is intended to be realistic and the date is Jan 31 2020. (see note below) You have recently joined Puma in a management position. Your CEO regards competitor analysis as very important and consequently the company regularly produces internal reports on the companies regarded as key competitors.

Write a report advising the commercial director on the broad financial strengths and weaknesses of Adidas as a competitor. You should focus on the financial strength and weaknesses of Adidas with a view to comparing Puma with Adidas so that Puma can identify areas for improvement. You should use the CORE Strategic Financial Analysis approach and compare Adidas’ performance with that of Puma itself. Conclude by assessing the strengths and weaknesses of Adidas as a competitor and the level of competitive threat it poses to Puma.

Note - The markets have been severely affected by the Coronavirus pandemic so the future is less certain and more difficult to predict. This assignment should therefore focus primarily on the fundamentals of the companies being investigated based on their 2019 results prior to the pandemic. Similarly strategy and performance analysis should assume that once recovery is under way, they will work back towards their pre-pandemic position. In other words although the current situation cannot be ignored, your prime focus should be on performance and stability in more normal times.

Prepare the requested report to include the following:

1. A review and comparison of the recent financial performance and current position of Puma and Adidas plc.
2. An analysis of the performance of the companies from the viewpoint of the stock market.
3. Recommendations to Puma on the strengths and weaknesses of the company compared to

Note that your client will expect a clear and concise report (approximately 2,750 words excluding appendices). Some general guidance on acceptable report style follows:

Use the most recent set of full accounts.

Give your report a title & provide an Executive Summary,

Give a brief introduction to cover the issues to be analysed and the approach you will consider. Remember a CORE approach is expected.

Within CORE, don’t just show lots of calculations, explain what you infer from the numbers and ratios and how they support your conclusions and recommendations.

Define any non-standard ratios used but demote detailed calculations, etc. to an appendix.

Cite references, state assumptions made, mention other information that might be useful or further investigations you would have liked to conduct. Fully consider both financial and non-financial factors. Reach a conclusion and give clear advice.

Make your report “as concise as is consistent with clarity”.

Make use of supportive diagrams – especially those that emphasise the comparisons between companies.

Gramin plc is a manufacturer of GPS systems and has just bought the technology and rights to make and sell a solar powered personal GPS unit, to be called the Solway . A firm of management consultants has carried a feasibility study for the company at a cost of £250,000, which concluded that the Gramin will have a market for the Solway for 5 years before it becomes technically obsolete.

The Solways are expected to sell for £370 per unit and the variable cost per unit is expected to be £190. Relevant fixed costs per year (excluding depreciation, machine maintenance and marketing) are expected to be £450,000.

If the project goes ahead, maintenance costs would be £140,000 per annum. Additional working capital of £350,000, primarily Inventory and receivables, would be required at the beginning of the project. Annual marketing costs would be £380,000 per annum for each of the 5 years. All annual marketing occurs at the beginning of each year.

To make the Solway, there will be two requirements for assembly machinery:

(i) Machinery for stage 1 of the production will be purchased at a cost of £1,200,000. It is expected that at the end of 5 years, it will be sold for £200,000.

(ii) The company already has suitable machinery for the stage 2 of the production process. This machinery has a book value of £260,000 while its original cost was £520.000.

If not used on this project, this machinery would be sold now for £225,000. If it is used on this project, this machinery will have to be adapted at a cost of £120,000. This adapted machinery would be sold at the end of the project for £40,000