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Jet Financial Analysis Task 1

5099 words - 21 pages

Competition Bikes, inc,
Executive Summary Report
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Horizontal, Vertical, Trend and Ratio Analysis
The assessments of the financial health of Competition Bikes, Inc. (CB) are derived using
the attached income statements and balance sheets. Focusing on calendar years # 6, 7 and 8 to
gauge the growth and stability of this company.
Between the years # 6 and 7, Competition Bikes, Inc. had a significant growth in new
earnings that was not extended on into year # 8. The net earnings moved from a positive 313.4
% to a dramatic loss of 81.6% .
A.1.a) ...view middle of the document...

Product costs went down by 14 percent and sales expense
decreased by 15 percent. The general operating expense increased by 1 percent. The decrease in
product cost and sales expense was not significant enough to offset the decrease in sales. The end
result was a dramatic decrease in net income by 82%. The balance sheet shows total assets
decreasing by – 0.1% with liabilities also decreasing by -1.9%. This is a positive sign of
“The horizontal analysis will provide an analysis of the financial performance of
Competition Bikes, Inc. and provides an overview of potential trends of the
company .”(Ashfaq, n.d.).
The years # 7 and 8 utilizing the horizontal analysis further shows that total revenues
decreased by 15.0% . Total expenses decreased by an impressive 69.1%. The result was
earnings before income taxes (EBIT) decreased 313.4% and net earnings reduced 81.6%.
A horizontal analysis of CB is derived utilizing the income statement for Years 8, 7 and 6.
Competition Bikes, Inc.’s financial strength was solely relied on by use of their income
Statements. It revealed a decline in growth in year #8 from year #7 . A 15% decline in
net sales resulted in a 16.3% decline in overall gross profit.
The 15% reduction in sales is an overall operational area of concern. The decline has
been attributed to a decrease in the economy.. It is anticipated that sales trends will remain
steady for the next three years. For CB to recover from a such a steep decrease in sales, new
fiscal policies are necessary to remain a solvent company.
Since sales were down, the products were not manufactured and the cost of goods sold is
aligned with this reduction. The Gross Profit was reduced also because of the lack of sales and
can affect future expansion of CB.
Operation Expenses
The operational expenses seen a 3.6% decline. This decline was not equal to the decrease
in revenue. Management must keep expenses related to sales income. If they had kept in line the
operational expenses would have declined in lieu of increased.
There are a few areas of concern within this area that must be addressed.
Selling Expenses
Sales expenses are reduced by 14.9%. This is consistent with the reduced sale. Sales is
remunerated by a percentage.
The reduction in sales paralleled the reduction in total sales expenses. Notably was the
decrease in advertising costs by 16.3 percent. A reduction in advertising can be partially
attributable to the decrease in gross sales.
The Cost of Utilities steadily grew. CB experienced an 11.1% growth. This would not be
suspect except why did utilities needed for production increased when production decreased.
In addition to the utility costs, all other general and administration expenses increased by
7.6 percent. This is of concern, besides utilities, all other costs were either below or even with
year # 7.

Balance Sheets and Total Assets

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