Publicação
The impact of IFRS 16 on Adidas AG’s financial statements and company valuation
| Resumo: | IFRS 16 provides new guidance on accounting for leases which will have a significant impact on Adidas’ financial statements and company valuation as the company has strongly relied on off-balance sheet financing. Under IFRS 16, leases will be classified either as ‘Right-of-use asset’ which is representing the right to use the underlying asset or as ‘Lease liability’ which corresponds to the obligation to pay for the leased assets. IFRS 16 increases Adidas’ EBITDA and EBIT by the value of newly recognised lease interest expenses but the total cash flow remains unaffected. In terms of valuation, the main impacts of IFRS 16 are the adjusted Enterprise-Equity-Bridge and especially the increasing debt portion of the WACC which lowers Adidas’ cost of capital. Adidas’ share price is very sensitive to the implementation of IFRS 16 as the value of lease liabilities has a significant impact on the company’s WACC and, therefore, on the related valuation. |
|---|---|
| Autores principais: | Matern, Konstantin |
| Assunto: | IFRS 16 Capitalized leases Valuation process Enterprise-equity-bridge |
| Ano: | 2020 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade Nova de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório Institucional da UNL |
| Resumo: | IFRS 16 provides new guidance on accounting for leases which will have a significant impact on Adidas’ financial statements and company valuation as the company has strongly relied on off-balance sheet financing. Under IFRS 16, leases will be classified either as ‘Right-of-use asset’ which is representing the right to use the underlying asset or as ‘Lease liability’ which corresponds to the obligation to pay for the leased assets. IFRS 16 increases Adidas’ EBITDA and EBIT by the value of newly recognised lease interest expenses but the total cash flow remains unaffected. In terms of valuation, the main impacts of IFRS 16 are the adjusted Enterprise-Equity-Bridge and especially the increasing debt portion of the WACC which lowers Adidas’ cost of capital. Adidas’ share price is very sensitive to the implementation of IFRS 16 as the value of lease liabilities has a significant impact on the company’s WACC and, therefore, on the related valuation. |
|---|