Financial Analysis – JET2 Task 1
Report for Competition Bikes, Inc.
Competition Bikes, Inc was formed in 2001 and manufactures professional and performance bicycles used in a variety of racing events for expert riders. Bicycles produced by this company are ridden by 60% of all race winners and word of mouth has been their main marketing strategy. Competition Bikes is also the first company to use drive shaft technology in their bikes, which sets them apart from their competitors. A horizontal, vertical, trend and ratio analysis of Competition Bikes has been completed and is summarized in the review below.
HORIZONTAL, VERTICAL, & TREND ANALYSIS
Beginning with a comparison ...view middle of the document...
Total operating expenses increased 23.9% which is well below the increase in sales, this allowed Competition Bikes to achieve Operating Income that was 154.6% increase and Net Earnings increase of 313.4% from year 6 to year 7. A review of the company’s assets shows that cash and cash equivalents have declined 64.6% from year 6 to year 7. This is a weakness in that the company only has a little over one months operating expenses on hand in the event of an emergency. Short term investments are up 10.8% which might offset the company’s cash and cash equivalent shortage if funds could be transferred in a timely matter. The company has had a 164.3% increase in net accounts receivables which might account for the shortage of cash on hand as well. The company predicts a slower rate of growth due to economic factors in the future the large amount in accounts receivable indicates that they are having some difficulty in collecting from their buyers. Their raw materials inventory has declined 15% in year 7 from year 6. This could be a concern in the future as materials become more difficult to obtain and can slow production. They do have more finished goods inventory which is 31.8% higher in year 7 than year 6. Overall, total current assets increased 31.5% from year 6 to year 7 which is a strength for Competition Bikes. Looking to the company’s liabilities accounts and notes payable have increased 192% from year 6 to year 7 which has contributed to the increase in total current liabilities by 122.4% , and ultimately the overall increase in total liabilities to 1.2% from year 6 to year 7. This trend coupled with an already identified slowing trend in economic factors is something that Competition Bikes should be aware of. Total assets increased 2.2% from year 6 to year 7. Furthermore, the company’s total current assets at the end of year 7 exceed their total liabilities by 112.7% which is an increase from the end of year 6 where assets exceeded liabilities by 110.5%. This is a strength for the company.
Moving into a comparison between year 7 and 8, sales in units decreased from 4000 to 3400 which is a 15% decrease in the number of units sold and is reflected in total Net Sales which also fell 15%. Consistent with this same decrease of 15% were sales commissions, distribution network support, transportation out costs, and total selling expenses decreased 14.9%. The total cost of goods sold decreased 14.5%; this did not have the same reduction has the decrease in sales and contributed to the overall reduction in profit margin. The gross profit margin from year 7 to year 8 decreased 16.3%. This loss is greater than the overall reduction in sales and should be an area of concern moving forward. The company decreased both their advertising and research and development 16.3% between year 7 and 8, this can weaken their market base and limit changes to their current product. The down side of this is that their customer base may not grow and...