USING 2018 CONSOLIDATE STATEMENT OF FINANCIAL POSITION AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FROM THE ANNUAL REPORT OF ADIDAS COMPANY, PLEASE ANSWER THE FOLLOWING QUESTIONS.
ACCOUNTS RECEIVABLE (SEE NOTE #09)
1. Evaluate the ending balance of accounts receivable. Are there any significant changes in the amount of loss allowances?
2. Using a company of your choice, compare bad debt % of the company with that of Adidas. What do we know from the difference?
INVENTORIES (SEE NOTE #10)
1. Explain different types of inventory accounts Adidas maintains.
2. What is “allowance for obsolescence” for inventories? Explain.
3. Using a company of your choice, compare % of allowance and inventory turnover ratio between the two companies. What do we know from the differences?
1) Ending balance of Accounts Receivable for FY 2018 is 2,418 Euros (In Millions).
Yes, there's an update on Page 165 which talks about impairment loss on financial assets including receivables where they've created a collective loss allowance and accounts receivable are allocated based on different characteristics including credit risk, geographical regions and macro-economic indicators. Profitability is adjusted by the Credit Default Swap (CDS) and then applied in combination with a loss given default & exposure to calculate expected credit loss for each portfolio & ageing bucket.
2) I'm using the financials of NIKE, the closest competitor of Adidas, for comparison.
Based on the below table, we can clearly identify that NIKE's bad debts allowance is much lesser than Adidas's. We can understand from the difference that Adidas is not able to collect it's receivables effectively and the same should be focused upon by the management to identify if this issue is particularly high due to a certain geography, client or product so that can be resoved.
|Adidas Accounts Receivable Summary|
|Accounts Receivable - Gross||2612||2484|
|Accounts Receivable - Net||2419||2315|
|Loss Allowance as % of Receivables||-7.39%||-6.80%|
|NIKE Accounts Receivable Summary|
|Accounts Receivable - Gross||3528||3696|
|Accounts Receivable - Gross||3498||3677|
|Loss Allowance as % of Receivables||-0.85%||-0.51%|
1) Adidas maintains following classification of inventory:
2) Allowance for obsolescence refers to the estimate from the management for the loss in inventory due to ageing. Adidas maintains Inventory Days Lasting (IDL) and monitors it closely to reduce loss due to obsolescence.
3) Turnover Ratio of Adidas is almost double of NIKE reflecting it's ability to rotate inventory and generate sales.