Investment Appraisal Report for Adidas UK - Finance and Accounting Assignment Sample

Introduction of Accounting And Finance For Decision-Making at Addidas Assignment

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1: Executive Summary

1.1: Purpose of Report

In order to conduct this report, the major emphasis shall be laid on the discussions relating to the proposal of a new investment strategy for Adidas UK. This report shall also lay specified importance on the financial and non-financial metrics of performance and justify the various risks associated with the streamlined implementation of the new investment.

1.2: Company Background

Adi Dassler whose primary intention was promoting sports equipment for the athletes founded Adidas UK in the year 1949 (adidas-group.com, 2022). The current operational headquarters for Adidas UK is situated in Stockport, a suburb located a few miles away from Manchester. As of 2021, a total number of 62000 employees are currently engaged across various functional divisions of Adidas UK, to uplift their professional enhancement as well as promote an influential lifestyle in their normal lives (statista.com, 2022).

Total Number of Employees in Adidas

(Source: Influenced from statista.com, 2022)

1.3: Conclusion

This report has discussed the detailed outline of the investment appraisal required for Adidas UK to consider for flourishing their business. The financial aspects of this report further determine the strong financial indicators during the year 2021 and the presence of feasible internal rate of return and net present value. Moreover, the non-financial aspects of the report have been conveyed through SWOT and PESTLE analysis, which is mostly attributed to the government legislation and the possibilities of an economic crisis.

1.4: Recommendation

R1: Recommended for Optimise Costs

The optimisation of costs is being recommended to achieve a higher return and revenue generation from the new project IoT.

R2: Recommended for involving Technology at large-scale

The technology involvement at a large-scale is required to be considered to further ensure a large plethora of customers with Adidas UK.

2: Motivation of Proposed Investment

2.1: Purpose

In order to understand the psyche and logic behind the proposal of new investment, a detailed market analysis is needed to be conducted to ensure robust business dynamics and perpetual commercial growth for Adidas UK. The investment is being proposed for introducing Internet of Things (IoT) and subsequently integrating this into regular business streams. The covid-19 pandemic has severely affected the outlook of retail organisations and to ensure present and future sustainability, this investment is deemed necessary. Moreover, the agenda and purpose associated with the implementation of this project are also associated with the increase in customer interaction and engagement and thereby define a large market share in the UK.

2.2: Process

In order to break down the motive behind investment in the new IoT project, the managerial spearhead of Adidas UK is concerned with minimising the potential business losses either due to covid-19 or due to economic slowdowns. As per demonstrations and observations of Herbohn et al. (2022), the impacts of covid-19 have dissected the entire operational and financial paradigms for retail sectors, thereby leading to large-scale losses and economic shutdown. The key drivers for a retail sector are mostly considered the customers and Covid enforced curbs and restrictions led to the disintegration of customers for a prolonged period. Hence, this project is being considered for implementation to mitigate the reduced customer integration-related to buying of retail and sports equipment.

2.3: Propositions

The propositions involved with the implementation of the new investment proposal are mostly based on the capabilities and attributes contained by IoT. The major features and attributes of the IoT implementation are expected to raise customer engagement, create a plethora of b business development opportunities as well as mobilise the customer experiences and increase operational efficacy. Tang (2019), opined and illustrated that the additional capabilities possessed by the key drivers also include the likelihood of identifying fresh customers in the market and providing them enhanced services and thus ensuring the long-run durability of Adidas UK.

3: Investment Appraisal using Quantitative and Qualitative assessment

3.1: Calculation of Payback Analysis

Table 1: Payback Analysis

(Source: Created by Learner)

3.2: Calculation of NPV and IRR

Table 2: NPV and IRR calculation

(Source: Created by Learner)

Net Present Value

(Source: Created by Learner)

3.3: PESTLE analysis

The PESTLE analysis for an organisation is considered an area of key and significant importance to outline its non-financial and external environment further defining its current business structures. Following is the tabulated and detailed discussion on PESTLE analysis further determining the external and non-financial parameters for Adidas UK.

Table 3: PESTLE analysis

(Source: Created by Learner)

3.4: SWOT analysis

The importance of SWOT analysis is also considered a crucial indicator to further outline the internal and external environment of Adidas UK. A detailed tabulated discussion on the strengths, weaknesses, opportunities and threats are further mentioned as follows.

Table 4: SWOT analysis

(Source: Created by Learner)

The above table of SWOT analysis portrays the various attributes and characteristics of Adidas UK in the internal and external parlance. Strengths of the company have been identified as enhanced business dynamics and long-standing favourable goodwill to complement its business operations in the domestic and international markets. As per statements of Tang (2019), the weaknesses and threats have been attributed to the possibilities of economic slowdowns and the presence of a shrunk market size. Moreover, the opportunities of the business and investment propositions of the IoT project mainly include technological and digital exploration, which creates the potential to form suitable and credible joint overseas collaborations and ventures.

4: Discussion on Risks and Returns and impacts on performance

4.1: Sensitivity Analysis 

Table 5: Sensitivity Analysis

(Source: Created by Learner)

4.2: Risk of Cost of capital, costs and benefits

The risks associated with the application and implementation of cost of capital includes the determination of a feasible rate to establish potential investment returns. As per illustrations and explanations of Vartiainen et al. (2020), the higher the cost of capital, the higher chances of project volatility persists, which could ultimately lead to a decreased involvement and concentration of investors. The cost and benefits approach is also considered a critical tool for an investment appraisal and its risks affect the overall investment outcome in a significant manner. The risks associated with the costs and benefits further include the ineffective outline of project details, which does not contain the systematic breakup of costs and other investment-oriented expenses.

4.3: Returns from NPV

The returns from NPV from the new investment proposal are stated to be positive from year 2 onwards. The NPV for the project is expected to reach its peak in the final year of the project and therefore, it is a clear indicator that the project should be accepted at the earliest by the management of Adidas UK.

4.4: Risks and Returns of Discounted Payback Period

The risks associated with the Discounted Payback period are considered to affect the stipulated project and investment returns in a crucial and significant manner. The main risk of the discounted payback period is attributed to the longer payback period, which exceeds the actual duration of the project. According to Merzy and Daryanto (2018), this could influence the actual feasibility of the IoT investment proposal leading to the further decline of financial performance for Adidas UK. 

4.5: Calculation and Discussion of Financial Ratios

Table 6: Current Ratios

(Source: Created by Learner)

Table 7: Quick Ratios

(Source: Created by Learner)

Table 8: Gross Profit Ratios

(Source: Created by Learner)

Table 9: Net Profit Ratios

(Source: Created by Learner)

The calculation of current ratios for 2021 and 2020 has been measured as 1.56 and 1.38 respectively and the quick ratios include figures of 1.11 and 0.88. The gross profit ratios and net profit ratios for 2021 and 2020 are calculated as 50.70%, 49.66%, 6.83% and 2.11%. As per the explanations and statements of Bawono, Kanivia and Rusmana (2021), the liquidity ratios of 2021 are better placed along with the current ratios. Thus, it can be stated that the company is reviving back its old business dynamics and the inclusion of IoT shall further encourage a better-established financial performance (finance.yahoo.com, 2022)

References

Books

Herbohn, J., Rowland, P., Harrison, S., Irons, R., Dayananda, D. (2002). Capital Budgeting: Financial Appraisal of Investment Projects. United Kingdom: Cambridge University Press.

Journals

Bawono, I.R., Kanivia, A. and Rusmana, O., 2021. FACTORS AFFECTING THE FINANCIAL AND NON-FINANCIAL RATIOS ON GOING-CONCERN AUDIT OPINION. Assets: Jurnal Akuntansi dan Pendidikan, 10(2), pp.87-100.

Merzy, A.M. and Daryanto, W.M., 2018. Financial Feasibility Studies for Perusahaan Gas Negara (PGN) Project: A Case Study of City Gas Project in Indonesia for The Period of 2018-2038. South East Asia Journal of Contemporary Business, Economics and Law, 17(2), pp.28-35.

Tang, C., 2019. The Core Proposition of the Treasury Reform and Assignment of Power and Responsibility. International Journal of Finance and Banking Research, 5(2), p.9.

Vartiainen, E., Masson, G., Breyer, C., Moser, D. and Román Medina, E., 2020. Impact of weighted average cost of capital, capital expenditure, and other parameters on future utility?scale PV levelised cost of electricity. Progress in photovoltaics: research and applications, 28(6), pp.439-453.

Website

actuarialpost.co.uk, 2022, UK Legislations [online], Available at: https://www.actuarialpost.co.uk/article/gold-standard-dc-provision-in-an-esg-focused-climate-20785.htm [Accessed on: 09.05.2022]

finance.yahoo.com, 2022, Balance Sheet [online], Available at: https://finance.yahoo.com/quote/ADS.DE/balance-sheet?p=ADS.DE [Accessed on: 09.05.2022]

statista.com, 2022, Number of Employees [online], Available at: https://www.statista.com/statistics/268427/number-of-employees-of-the-adidas-group-worldwide-since-2000/ [Accessed on: 09.05.2022]

Online Articles

accountlearning.com, 2022, Economic Effects [online], Available at: https://accountlearning.com/important-economic-factors-affect-investment/ [Accessed on: 09.05.2022]

Adidas-group.com, 2022, About us [online], Available at: https://www.adidas-group.com/en/about/history/ [Accessed on: 09.05.2022]