Adidas 2005 Annual Report Download - page 173

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169
Finance Lease
A method of acquiring an asset that involves a series of rental payments extending over the
whole expected lifetime of the asset.
Financial Leverage
This ratio refl ects the role of borrowings within the fi nancing structure of a company. It is cal-
culated by dividing net total borrowings by shareholders’ equity.
Forward Contract
Agreement to exchange amounts of one currency for another currency at an agreed fi xed rate
at a future date.
Free Cash Flow
Free Cash Flow is calculated as net cash provided by operating activities minus capital expen-
ditures. It indicates a company’s level of fi nancial fl exibility.
Free cash fl ow = Operating profi t – income tax + depreciation – capital expenditures +/– chan-
ges in working capital
Functional Currency
A currency in which a company conducts most of its business and reports its fi nancial results
to the parent company or the investing public.
Goodwill
An intangible asset that quantifi es the price that a buyer of a company has paid for the reputa-
tion, know-how and market position of the acquired company. Goodwill is the excess of the
amount paid over the fair value of the net assets acquired at the purchase date.
Gross Margin
The gross margin reveals how much a company earns taking into consideration the costs that
it incurs for producing its products and/or services.
Gross profi t = net sales – cost of sales.
Gross margin = (gross profi t/net sales) x 100.
Hedging
A strategy used to minimize exposure to changes in prices, interest rates or exchange rates by
means of derivative fi nancial instruments (options, swaps, forward contracts, etc.). See also
natural hedges.
IFRS (International Financial Reporting Standards)
Reporting standards (formerly called IAS), which have been adopted by the International
Accounting Standards Board (IASB), an independent, international organization supported by
the professional accountancy bodies. The objective is to achieve uniformity and transparency
in the accounting principles that are used by businesses and other organizations for fi nancial
reporting around the world.
Institutional Investor
Entity with large amounts to invest, such as investment companies, mutual funds, brokerages,
insurance companies, pension funds, investment banks and endowment funds.
Interest Coverage
The interest coverage ratio indicates the ability of a company to cover net interest expenses
with income before net interest and taxes. It is calculated by dividing income before interest
and taxes by interest.
Interest Rate Caps
Option contracts which place an upper limit on a fl oating interest rate. The writer of the cap is
required to pay the holder of the cap the difference between the fl oating rate and the reference
rate when that reference rate is exceeded. There is a premium to be paid by the buyer of such
a contract as market price for the potential pay-out.
International Financial Reporting Interpretations Committee
An accounting body which rules on controversial accounting issues. Its interpretations are
approved by the International Accounting Standards Board (IASB) and, once adopted, are bind-
ing on all IFRS users.
IPO (Initial Public Offering)
The fi rst public placement of shares by a private company.
Liquidity Ratios I-III
The liquidity ratio measures the extent to which a company can quickly liquidate assets to cover
short-term liabilities. They are calculated as follows:
Liquidity I: The sum of cash and short-term fi nancial assets divided by current liabilities mul-
tiplied by 100.
Liquidity II: The sum of cash and short-term fi nancial assets as well as accounts receivable
divided by current liabilities multiplied by 100.
Liquidity III: The sum of cash and short-term fi nancial assets as well as accounts receivable
and inventories divided by current liabilities multiplied by 100.
Market Capitalization
The total market value of all outstanding shares. It is calculated by multiplying the number of
shares by the current market price.
Marketing Overhead
Comprises marketing personnel, general and administrative costs.
Marketing Working Budget
Promotion and communication spending including sponsorship contracts with teams and indi-
vidual athletes, as well as advertising, retail support, events and other communication activi-
ties, but excluding marketing overhead expenses.
Supplementary Information Financial Glossary