The valuation of a company is fundamental for financial and strategic decision making. One of the first structured approaches to assess the value of a company was the so-called Shareholder Value Analysis developed by Rappaport (1986). Heidentified value drivers in three different areas, namely Finance, Investment and Business. The theory says that improvement of these value drivers leads directly to an increase in shareholder value (Spencer and Francis 1998).
In this assignment, the company to be evaluated, namely adidas, will be presented and then analysed concerning the value delivery in recent years. After that, different methods of company valuation will be explained and applied to adidas. The assignment will finish with a critical appraisal of the findings.
Table of Contents
1. Introduction
2. Value delivery over the past 5 years
3. Development of the equity value over the last 12 months
4. Equity valuation
4.1. Net Asset Value
4.2. Price/Earnings Ratio
4.3. Discounted Cash Flow
5. Critical Appraisal & Conclusion
Research Objective and Scope
This assignment evaluates the company performance and equity value of adidas AG, focusing on value delivery mechanisms and the application of diverse valuation models to assess the firm's financial standing and market position.
- Analysis of historical value delivery and Total Shareholder Return (TSR) from 2002 to 2006.
- Examination of the equity value development, specifically accounting for the impact of the Reebok acquisition.
- Application and critical comparison of Net Asset Value (NAV), Price/Earnings Ratio (PER), and Discounted Cash Flow (DCF) models.
- Execution of a sensitivity analysis to determine the impact of key financial variables on the company's valuation.
Excerpt from the Book
1. Introduction
The valuation of a company is fundamental for financial and strategic decision making. One of the first structured approaches to assess the value of a company was the so-called Shareholder Value Analysis developed by Rappaport (1986). As shown in the following figure, he identified value drivers in three different areas, namely Finance, Investment and Business. The theory says that improvement of these value drivers leads directly to an increase in shareholder value (Spencer and Francis 1998).
In this assignment, the company to be evaluated, namely adidas, will be presented and then analysed concerning the value delivery in recent years. After that, different methods of company valuation will be explained and applied to adidas. The assignment will finish with a critical appraisal of the findings. Assumptions for the calculations done in this assignment can be found – if not otherwise stated – in appendix 1.
adidas (ADS, ISIN De005003404) is one of the leading sporting goods producers. Effective 31 January 2006, it acquired Reebok and therewith increased its sales to more than € 10bn p.a. The purchase price for Reebok was circa € 3.0bn (adidas 2007c).
Summary of Chapters
1. Introduction: Outlines the fundamental approach of Shareholder Value Analysis and sets the scope for the evaluation of adidas following the Reebok acquisition.
2. Value delivery over the past 5 years: Calculates the Total Shareholder Return (TSR) for adidas and compares the delivered performance against the cost of equity and benchmark indices.
3. Development of the equity value over the last 12 months: Analyzes the share price volatility throughout 2006, highlighting the influence of the Reebok acquisition and market reactions to quarterly results.
4. Equity valuation: Introduces and applies three distinct valuation methods—Net Asset Value, Price/Earnings Ratio, and Discounted Cash Flow—to derive the equity value of adidas.
5. Critical Appraisal & Conclusion: Summarizes the findings of the different valuation models, addresses their limitations, and provides a final assessment of the company's current value.
Keywords
Shareholder Value Analysis, adidas AG, Reebok Acquisition, Total Shareholder Return, Equity Valuation, Net Asset Value, Price/Earnings Ratio, Discounted Cash Flow, Cost of Capital, Sensitivity Analysis, Market Capitalization, Financial Performance, Investment Strategy, Corporate Finance, Share Price Development.
Frequently Asked Questions
What is the core focus of this assignment?
The paper focuses on assessing the financial performance and intrinsic value of adidas AG, particularly in the context of its strategic acquisition of Reebok.
What are the primary thematic areas covered?
The central themes include shareholder value drivers, historical return analysis, modern valuation methodologies, and the impact of strategic corporate events on equity value.
What is the main objective of the financial study?
The primary goal is to apply structured financial valuation models—NAV, PER, and DCF—to estimate the company's value and compare these results to actual market data.
Which scientific valuation methods are utilized?
The author employs the Net Asset Value (NAV) method, the Price/Earnings Ratio (PER) as a performance indicator, and the Discounted Cash Flow (DCF) model to determine company valuation.
What topics are discussed in the main body?
The main body covers historical share performance, the impact of the Reebok acquisition on share price, detailed valuation model calculations, and a sensitivity analysis regarding critical financial variables.
Which keywords best characterize this work?
Key terms include Shareholder Value Analysis, Equity Valuation, Discounted Cash Flow, and Total Shareholder Return.
Why was the Reebok acquisition considered in the valuation?
The acquisition was a major strategic event in 2006 that significantly impacted adidas' sales volume, accounting structures, and market perception, making it essential for an accurate valuation analysis.
What does the sensitivity analysis reveal about the valuation?
The analysis indicates that variables like the Weighted Average Cost of Capital (WACC) and operating profit growth have the most significant impact on the resulting Net Present Value (NPV).
How does the author conclude the comparison of valuation methods?
The author concludes that while DCF is the most rational approach, all models have inherent limitations, and therefore, valuation should be treated as an estimation rather than an exact science.
- Quote paper
- Andreas Klein (Author), 2007, Strategic Financial Management - Analysed company: adidas AG, Munich, GRIN Verlag, https://www.grin.com/document/78328
