Executive Summary
The analysis aims to demonstrate the importance of proforma planning in making capital budgeting decisions. The projected growth of net sales for Adidas is estimated to be 15% according to the proforma income statement.
In conclusion, Adidas is continuously expanding its presence in the sports apparel industry.
Introduction:
Adidas is one of several thriving sporting goods apparel stores in the market. Their sales have shown positive growth, increasing from 2,708 million in 1998 to 2,718 million in 1999. This indicates that they are making strategic capital budgeting decisions. To demonstrate their future planning and growth, a proforma income statement will be created.
Financial Planning:
The initial step in financial planning involves determining a sales forecast.
The projected sales for the year 2000 will experience a 15% increase. Furthermore, there is a proforma statement for Adidas indicating that sa
...les will reach 3,125 million in 2001. Proforma statements are financial summaries that outline future events. Then, an asset requirement describes projected capital spending, affecting capital budgeting. Consequently, Adidas plans to increase capital spending by 15%. Lastly, there are financial requirements concerning Adidas' financing arrangements.
Adidas's utilization of assets instead of borrowing is due to their two shareholders. The plug, an external equity, constitutes the fifth component of their financial planning. With ample retained earnings and consistent income, the company maintains a stable financial position. Additionally, economic assumptions will be incorporated into the plan. Furthermore, Adidas aims to stay below a tax rate of 39%.
Profit Margin
According to Jones (1972), Adidas sporting apparel has a commendable profit margin of 40%. This has been achieved by implementing an increase in sales prices, thereby preventing any shrinkage in th
margin. The profit margin serves as an indicator of the growth in trading activities and measures the return on capital employed.
Conclusion
In conclusion, Adidas generates sales in three main categories: footwear, apparel, and hardware.
By creating a proforma statement, Adidas can effectively manage their investment and make informed decisions. This means that if Adidas is able to meet their projected income for the year 2001, they can achieve their maximum growth potential without requiring external financing.
References
- Jones, Ernest. (1972) Finance for the Non-Financial Manager., New York. Pitman Publishing Co.
- Ross, Stephen; Westerfield, Randolph; Jordan, Bradford. (1998) Fundamentals of Corporate Finance. (4th Ed.) Massachusetts: McGraw-Hill Co.,Inc.
- www.Adidas.com:Quarterly Annual reports.
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