How confident should we be in the forecast?
Backtest: better model, not accurate model
The driver-based forecast produced a smaller error than a naive extrapolation on every metric — but both undershot what adidas actually delivered. Beating a naive baseline once is not the same claim as being reliable.
| Naive | Driver-based | Actual | |
|---|---|---|---|
| Revenue | €26.18bn | €25.59bn | €24.81bn |
| Operating profit | €1.60bn | €1.75bn | €2.06bn |
| Free cash flow | €1.27bn | €1.07bn | €1.11bn |
Why the forecast missed
Free cash flow landed +€37m from the forecast, which reads like a model that worked. Walking each assumption to what FY2025 actually delivered shows €808m of driver error that happened to cancel.
| Driver | Assumed | Actual | Impact |
|---|---|---|---|
| Revenue growth FY2025 net sales over FY2024 net sales, as reported | 8.0% | 4.8% | +€90m |
| EBITDA margin FY2025 EBITDA over FY2025 net sales, as reported | 11.6% | 12.6% | +€181m |
| Effective tax rate FY2025 effective tax rate, as reported | 26.5% | 24.3% | +€43m |
| Working capital FY2025 operating working capital as a percentage of net sales, as disclosed | 21.5% | 23.0% | −€372m |
| Capex FY2025 capital expenditure, as reported | €600m | €477m | +€123m |
| Residual not attributable to any driver | — | — | −€27m |
Driver errors largely offset: €808m of gross movement nets to €+37m. The forecast landed close on this metric despite every assumption behind it being wrong, so the small variance is not evidence the assumptions were sound.
Not attributable to a driver: the model scales D&A with revenue, product-division revenue does not sum exactly to reported group net sales, and free cash flow is a derived construction rather than a disclosed line item.
Sequential bridge: drivers are substituted in a fixed order, so interaction effects are attributed to whichever driver moves later.
Working capital reduced free cash flow by 372.3, the largest impact of any driver. Revenue growth added 89.8, EBITDA margin added 180.6, the effective tax rate added 42.8, and lower capex added 123.0. These opposing forces largely offset, yielding a small net increase of 37.2 despite substantial underlying movement in the assumptions. The residual of -26.6 reflects the portion of the variance not explained by the five drivers.
Forecast vintage
One backtest point, not a rolling history. A vintage timeline (plan → quarterly updates → actual) needs forecast snapshots taken through the year — this project has only the FY2024 report’s initial FY2025 guidance and the FY2025 actuals, an annual cross-section rather than a rolling forecast. Showing a fabricated multi-point timeline here would overstate what this data supports.
Monte Carlo range
Ranges are adidas's own disclosed FY2025 guidance bands, not historical volatility -- three fiscal years is too few to estimate volatility honestly. Capex has no disclosed range; a +/-5% band was assumed around the guided point figure.
Where should FP&A spend the next hour of diligence?
Ranked by simulated sensitivity to free cash flow, combined with how confident the underlying assumption is.
- 1Working capital
- 2EBITDA margin
- 3Capex
- 4Revenue growth
- 5Effective tax rate