Part A:
About the company and other related information
Founded in the year 1924, PUMA is a Germany based multinational entity that designs, manufacture and sells athletic footwear, apparels and other related accessories. The company was formed by two brothers,Adolf Dassler and Rudolf Dassler but owing to family quarrels, Rudolf separated from his brother and took over the company, eventually naming it Puma. Over the time, the company has expanded its product offering and it now offers products in various categories of sports. In addition to its principle brand PUMA, the company also offers its products under the name of Cobra Golf, Tretorn, Dobotex, and Brandon brands. The company also licenses its independent partners to deal in eyewear and watches.
Even though the company faces rivalry from many competitors,but it faces itense competition from companies such as Nike and Adidas.By the end of 2014, PUMA held 2.1% market share of the $255 billion global sportswear market, followed by Nike and Adidas, which owns 15% and 11% market share, respectively. According to an estimate, PUMA, as a brand, has a valuation of €2.5 billion. The company is endorsed by star sports celebrities like Usain Bolt, Mario Balotelli and Lexi Thompson, who are featured in ‘Forever Faster’ campaigns of the company.
At present, the company is led by its chairman, Jochen Zeitz and CEO, Bjorn Gulden. The company is listed on XETRA Stock Exchange under the ticker symbol of ‘PUM.DE’ and holds market capitalization of £2.51 billion.
As far as the financial reporting of the company is concerned, since the company is headquartered in Germany, it follows the IFRS rules related to European Union and follows the calendar year for financial reporting, i.e. January- December. The financial statements of the company are audited by Deloitte & Touche GmbH.- Page 168
Part B:
1) Referring to page 168 of the annual report of the company, we found that the auditors of the company have declared that it is the responsibility of the managing directors of the company to prepare the financial statements of the company.
2) The financial statements of the company are audited by Deloitte & Touche GmbH. The auditors in their report have confirmed that they have audited all the financial statements of the company and found that all the financial statements are prepared in accordance to IFRS accounting standards applicable to the European Union. In addition, the auditors also confirmed that the financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and accurately presents the suitable view of the company.
3)
- Page 123,125
As noted from the above figures, over the three year period, the revenue figures of the company have been consistently decreasing.However, amid a tight cost structure employed during 214, the operating income and the net income figures witnessed a favorable trend with significant increase in the profitability figures.
4) Referring to the balance sheet presented, we can see that the financial statement is presented in a comparative and classified format. Important to note, a comparative balance sheet presents side-by-side information about the company’s assets, liabilities and shareholder equity over multiple period of time. On the other hand, classified balance sheet presents information about an entity’s assets, liabilities and equity through sub-categorization. For instance, under the asset category, items are sub-classified as current assets and non-current assets. Similarly, under the liabilities category, items are sub-categorized as current liabilities and non-current liabilities. Below we have presented the snapshot of the balance sheet of the company that confirms comparative as well as classified format:
Answer 5)
- Page 122
Referring to the above figures,we can see that while 2013 was a turbulent year for the company, it did performed well in 2014. As for the asset position, a 7.81% decline in the current asset in 2013 was followed by a 11.4% increase in 2014. Similarly, while a marginal decline was witnessed in the property,plant and equipment during 2013, the situation was again reversed with additional investment channelized in PPE during 2014. On the other hand, the company is operating with only equity capital, which following a 6.26% fall in 2013, increased by 8.09% in 2014. Finally, the current liabilities base is relatively lower than the current assets of the company which confirms a strong and sustainable working capital position of the company.
Therefore, considering the above trends, we can confirm that PUMA is back on a bullish and optimistic trend.
Answer 6)
Referring to the financial statements of the company, we can easily conclude that the entity follows the accrual basis of accounting. Important to note, the accrual basis of accounting requires an entity to record the transaction as soon as it takes place and not when an exchange of cash has been completed. It is because of this rule, ledger accounts such as accounts receivables and account payables are created.
Therefore, as we can see from the financial statements that the company holds transactions of accrual nature, i.e accounts payable,accounts receivables, deferred taxes,et cetera, thus confirming that all the accounting transactions are recorded as per accrual basis.
Answer 7)
Referring to the above figures, we can see that during 2013 the cash flow from operation plummeted by a massive 30.24%, but the company recovered well in the succeeding year and recorded a 15.64% surge in CFO amount. On the other hand, during 2013, the company also trimmed its investment in capital assets by 51.21%, but managed to increase the amount by 8.75% in the following year. However, unlike the trend in CFO and CFI, the company consistently increased the cash outflow as part of financing activities
Answer 8)
Referring to the balance sheet of the company, we found that the entity operates with 100% equity capital structure and all the assets are financed using equity capital only. Important to note, during 2013, the company raised long-term debt worth £3.9 million,but the amount as retired in 2014 only and at present, the company is funded with equity capital only.
Answer 9)
Earnings per share indicates the proportion of net income(less preference dividend) available to common equityholder of the company. Below we have indicated the EPS amount of Puma during the past three years:
Part C:
For the purpose of evaluating the financial performance of the company, we calculated multiple financial ratios related to liquidity, profitability, leverage, efficiency and market. Beginning with the liquidity ratios, we found that even though the working capital position of the company increased by 4.43% during 2014, however, owing to higher proportionate increase in current liabilities relative current assets, the current ratio and quick ratio multiple witnessed the decline. This confirms the weak liquidity position of the company.
As for profitability position, the trend was highly optimistic as the ratio multiples witnessed increasing trend amidst significant surge in the net income figure from £5.3 million to €64.1 million. It was because of phenomenal increase in the net income figures, the profit margins on sales and the asset base peaked to 2.51% and 2.15%, respectively. Most importantly, the shareholders of the company will be ecstatic after seeing ROE multiple increasing from 0.35% to 3.96%.
We also analyzed the leverage position of the company and found that while the company is operating under 100% equity capital structure, it did manage to increase its interest coverage ratio from 3.85 to 10.40, thus confirming strong solvency position.
Post witnessing optimistic trends in the profitability and leverage ratios, we then analyzed the efficiency ratios to learn about the asset management in the company. Beginning with the receivable turnover,we found that the multiple has plummeted from 7.05 to 6.61. This indicates that during 2014, it took more time for the company to collect their dues from the debtors, and this is most likely to affect the liquidity position of the company also. Similarly, even the inventory turnover ratio was down from 3.06 to 2.77, thus indicating that it now takes more time for the company to sell its asset and capital is tied up in inventory for a long period of time. In addition to the inefficiency in the current assets, we also witnessed inefficiency in the fixed assets with fixed asset turnover ratio multiple declining from 14.02 to 13.26. This indicates that during the year, the company could not generate as much revenue, using the fixed asset, as it did during the previous year. Overall, a marginal bearish trend was witnessed relating to asset management of the company.
Finally, we culminated the ratio section by calculating market based ratios. Beginning with PE ratio, which is also one of the widely used market ratios in the investment community, we witnessed that during 2014, the multiple declined from 644.72 to 40.80. Important to note, the decline in PE ratio can be inferred as negative sentiment amongst the investors relating to future growth of the company. Similarly, the decline in PB ratio, which also decreased from 2.10 to 1.61 signals that the market believes the stock to be moving towards the level of overvaluation.
Conclusion
Henceforth, considering the above analysis, we can conclude that even though the company recorded a commercially successful financial year during 2014, however, it still needs to perform consistently better to fuel confidence amongst the investors.
Ratio Calculations:
a) Liquidity Ratios:
-Current Ratio: Current Assets/ Current Liabilities
2013: 1514.2/690.8= 2.19
2014: 1682.5/822.6= 2.04
-Quick Ratio: (Cash+Receivables)/Current Liabilities
2013: (390.1+423.4)/690.8= 1.17
2014: (401.5+449.2)/822.6= 1.03
-Working Capital Position: (Current Assets- Current Liabilities)
2013: 1514.2-690.8= €823.4 billion
2014: 1682.5-822.6= €859.9 billion
b) Profitability Ratios:
-Return on Assets: Net Income/Total Assets
2013: 5.3/2308.5= 0.22%
2014: 64.1/2549.9= 2.51%
-Return on Sales: Net Income/ Revenue
2013: 5.3/2985.3= 0.17%
2014: 64.1/2972= 2.15%
- Return on Equity: Net Income/ Total Equity
2013: 5.3/1497.3= 0.35%
2014: 64.1/1618.3= 3.96%
-Assets to Equity: Assets/ Equity
2013: 2308.5/1497.3= 1.54
2014: 2549.9/1618.3= 1.57
c) Leverage Ratios
-Debt Ratio: Total Debt/ Total Assets
2013: 3.9/2308.5= 0.16%2014: N/A
-Debt-Equity Ratio: Total Debt/ Total Equity
2013: 3.9/1497.3= 0.002
2014: N/A
-Times Interest Earned: Operating Income/ Interest Expense
2013: 62.5/16.2=3.85
2014: 128/12.3= 10.40
d) Efficiency Ratios
-Receivable Turnover: Revenue/ Receivables
2013: 2985.3/423.4= 7.05
2014: 2972/449.2= 6.61
-Inventory Turnover: COGS/ Inventory
2013: 1597.8/521.3= 3.06
2014: 1586.7/571.5= 2.77
- Fixed Asset Turnover: Revenue/ Fixed Assets
2013: 2985.3/212.8= 14.02
2014: 2972/224=13.26
-Total Asset Turnover: Revenue/ Total Assets
2013: 2985.3/2308.5= 1.29
2014: 2972/2549.9= 1.16
e) Market Value Ratios
-PE Ratio: Market Price/ EPS
2013: 232.10/0.36= 644.72
2014: 173.85/4.26= 40.80
-Market to Book Value: Market Price/ Book value per share2013: 232.10/110.17= 2.10
2014: 173.85/107.87=1.61
Bibliography
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Key Statistics: PUMA. (n.d.). Retrieved February 13, 2016, from Yahoo Finance: http://finance.yahoo.com/q/ks?s=PUM.DE+Key+Statistics
Mathew, J. (2014, December 16). Kering explored options to sell sportswear maker Puma. Retrieved February 13, 2016, from http://www.ibtimes.co.uk/kering-explored-options-sell-sportswear-maker-puma-1479670
McClure, B. (n.d.). Using The Price-To-Book Ratio To Evaluate Companies. Retrieved February 13, 2016, from Investopedia: http://www.investopedia.com/articles/fundamental/03/112603.asp
Profile: PUMA. (n.d.). Retrieved February 13, 2016, from Yahoo Finance: http://finance.yahoo.com/q/pr?s=PUM.DE+Profile
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