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Last update on 2024-06-04

Adidas (ADS.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze Adidas' (ADS.DE) Piotroski F-Score of 6/9 for 2023, assessing profitability, liquidity, and efficiency. Key insights for investor decisions.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running Adidas (ADS.DE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
0
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
1

The Piotroski F-Score is used to measure the financial strength of a company on a scale of 0 to 9. Adidas (ADS.DE) was evaluated using the nine criteria, covering profitability, liquidity, and operating efficiency, and scored a total of 6. Key findings include: a negative net income for 2023 (€-75 million) which is a concern, but a positive cash flow from operations (€2.63 billion). The Return on Assets (ROA) has declined, yet operational cash flow exceeds net income indicating healthy earning quality. Leverage decreased while the current ratio slightly declined. Adidas showed a reduction in the number of outstanding shares, an increase in gross margins, and improved asset turnover.

Insights for Value Investors Seeking Stable Income

With a Piotroski Score of 6, Adidas shows signs of financial health in several domains but also faces significant challenges such as a negative net income and a declining ROA. The positive cash flow, decreased financial leverage, and improvements in operating efficiency are encouraging. If you're a potential investor, it might be worth considering Adidas, especially if the areas of concern show signs of improvement in the future. Keep an eye on profitability and liquidity metrics before making a final decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Adidas (ADS.DE)

Company has a positive net income?

The criterion examines if the current year's net income is positive or negative, which is crucial in assessing the company's profitability.

Historical Net Income of Adidas (ADS.DE)

For the fiscal year 2023, Adidas (ADS.DE) reported a net income of -€75 million, indicating a negative outcome. Analyzing historical data over the past 20 years reveals that the company has only experienced losses during two other years: 2009 and the pandemic-affected year of 2020. The net income reverting to negative in 2023 signifies a troubling development in terms of profitability, influenced potentially by disruptions in the supply chain, inflationary pressures, or strategic missteps. Hence, for this criterion, Adidas scores 0, illustrating a significant area of concern when assessing financial health and operational stability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) signifies the net cash inflow related to core business activities over a period, reflecting a company’s ability to generate sufficient revenue to maintain operations, pay dividends, and fund growth without external financing.

Historical Operating Cash Flow of Adidas (ADS.DE)

The CFO for Adidas in 2023 stands at €2.63 billion, marking a significant positive cash flow. This positive trend underscores the company's sound operational efficiency and ability to generate cash from its core activities. Over the past 20 years, the CFO data showcases a consistent positive cash flow, except for 2022, which was a notable deviation at negative €479 million likely due to extraordinary circumstances, perhaps linked to the global pandemic. In contrast, the recent return to a positive trend at €2.63 billion is an affirmative signal of recovery and operating health. Hence, for 2023, Adidas earns a point in the Piotroski analysis for positive CFO.

Return on Assets (ROA) are growing?

The Change in ROA criterion evaluates whether a company's return on assets has improved over the past year. This is important as it assesses asset efficiency.

Historical change in Return on Assets (ROA) of Adidas (ADS.DE)

Looking at Adidas' (ADS.DE) ROA for 2023 which stands at -0.0039 compared to 0.0288 in 2022, there is a clear decline. Therefore, no point is awarded for this criterion. A decreasing ROA indicates a reduction in the efficiency with which Adidas is utilizing its assets to generate profit. This performance is further stark when compared to the industry median ROA, which has been consistently higher, signalling a challenging environment for Adidas.

Operating Cashflow are higher than Netincome?

This criterion compares operating cash flow with net income. If the former is higher, it suggests earnings quality is robust, and cash flow figures are not relying on non-cash items.

Historical accruals of Adidas (ADS.DE)

Adidas (ADS.DE) has reported an operating cash flow of €2,630,000,000 in 2023 which is significantly higher than its net income of €-75,000,000. This grants Adidas 1 point on this criterion, suggesting positive earnings quality. Over the past 20 years, Adidas's operating cash flow indicates an upward trend and resilience, except for the anomaly in 2022. This is a good sign that, despite fluctuations in net income, the company's ability to generate cash from operations has generally improved or remained strong.

Liquidity of Adidas (ADS.DE)

Leverage is declining?

Change in leverage assesses whether a company's financial leverage has increased or decreased over a specific period.

Historical leverage of Adidas (ADS.DE)

In 2022, Adidas (ADS.DE) had a leverage ratio of 0.2606, which decreased to 0.248 in 2023. This reduction in leverage is generally viewed positively as it implies the company has reduced its reliance on debt financing. A historical analysis over the past 20 years shows that Adidas' leverage has fluctuated. Notably, the highest leverage was seen in 2022, suggesting the recent reduction in 2023 is a corrective measure. Therefore, Adidas earns 1 point for this criterion.

Current Ratio is growing?

The Current Ratio, calculated as Current Assets divided by Current Liabilities, is a measure of a company's ability to pay short-term obligations. A higher ratio indicates better liquidity.

Historical Current Ratio of Adidas (ADS.DE)

Between 2022 and 2023, Adidas saw its Current Ratio decrease from 1.2674 to 1.2196, indicating a slight decline in liquidity. Additionally, it's important to consider the long-term trend and an industry comparison. Over the last 20 years, Adidas' Current Ratio has been fluctuating yet has usually remained below the industry median. This could point to either a more aggressive financial strategy or certain inefficiencies when benchmarked against peers. Given the decrease, no point is assigned.

Number of shares not diluted?

Change in Shares Outstanding assesses whether a company's share count has increased or decreased. A decrease typically suggests share buybacks, indicating financial strength and confidence by management.

Historical outstanding shares of Adidas (ADS.DE)

Adidas (ADS.DE) saw its outstanding shares decrease from 183,263,629 in 2022 to 178,543,596 in 2023. This reduction signifies that Adidas is likely engaging in share buybacks, reflecting its robust financial health and a bullish outlook by its management. Over the last 20 years, Adidas has also consistently reduced its outstanding shares, barring a few years of increases. This continuing trend of share reduction is positive overall, and thus earns Adidas a score of 1 in this criterion.

Operating of Adidas (ADS.DE)

Cross Margin is growing?

Gross Margin measures the percentage of revenue that exceeds the cost of goods sold, showcasing operational efficiency.

Historical gross margin of Adidas (ADS.DE)

Adidas (ADS.DE) has witnessed a minor increase in its gross margin from 0.4728 in 2022 to 0.4752 in 2023. While this increment might seem small, every basis point counts in industries with slim margins. Tracking historical data, we notice periods of varied performance, such as highs above 50% in 2018-2019. Compared to the industry median gross margin of 0.4422 for 2023, Adidas' superior margin indicates better cost management or higher premium product pricing relative to peers. Hence, this positive shift earns Adidas 1 point in the Piotroski Assessment, affirming effective operational strategies amidst fluctuating industry benchmarks.

Asset Turnover Ratio is growing?

The criterion assesses the company's efficiency in utilizing its assets to generate revenue compared to the previous year. An increase indicates improving operational efficiency.

Historical asset turnover ratio of Adidas (ADS.DE)

In 2023, Adidas achieved an Asset Turnover of 1.1185, up from 1.061 in 2022. This increment signifies an improvement in the company's efficiency in deploying its assets to generate sales revenue. Historical data reflects fluctuations over the past two decades, with notable declines during economic downturns in '08 and the COVID-19 pandemic in 2020. Despite these challenges, Adidas's latest increase marks a positive trend, underscoring a rebound and efficient resource utilization. Thus, applying the Piotroski criterion, Adidas earns 1 point for this improved operational efficiency in 2023.


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