Financial Analysis of Competition Bikes Essay Example for Free

Financial abbreviation of contest Bikes EssayFinancial Analysis of aspiration BikesIntroduction In pecuniary digest a complete assessment of a product line organization coering competitiveness, profitability, fluidity and stability concerns. Financial analysis of a headache is undertaken by reviewing the business financial statements. Summarized financial statement reports are frequently presented to executives and top managers for setting up business goals as run lowly as making decisions. Analysis of the financial statements of Competition Bikes demand evaluation of the privileged operation focusing on vertical, horizontal, ratio and trend analyses and the working(a) capital. These evaluations communicate profit margins enabling projection of budgets and restraining earn sales and costs potential. Annual comparison of production performance subject to profit versus all overhead suffices in prevision of budgets for production ingredients on a monthly basis (Shi m, J. and Siegel, J. 2009).Competition Bikes Horizontal Analysis This is the examination of portion changes in comparative statements of a business. In this case, it is the evaluation of Competition Bikes comparative statements surrounded by the class 6 and 7 as salubrious as 7 and 8. The horizontal analysis chart swear outs in indicating the value of accounts payable polarial in form 6 and 7 as well as year 7 and year 8. The fraternitys net sales soared up by 33.3% between year 6 and 7 at $1,495,000. However, net sales differential coefficient between year 7 and 8 was a banish implying that sales decreased by 15% at $897,000. Therefore, it is innate that Competition Bikes increases annual sales to reap higher profits. The value of gross profit registered was a negative figure of $266,600 equivalent to 16.3% decrease. Interestingly, the keep company registered a 37.5% gross profits increase between year 6 and 7 at $447,000. The time time period between purchasing of ra w materials, manufacturing and distribution of goods is referred to as the run cycle. The net period in collection of receipts from payments and sales is the cash alteration cycle for the different ingredients consumed and produced by Competition Bikes. The company witnessed a decrease in the operating cycle between old age 6 and 7 from 50.52 to 48.00 days. This is explained by the increased egress of sales relation back to the inventories developing sum up. The cash conversion period between year 6 and 8 was relatively negative. This is because Competition Bikes Inc has a high liquidity owing to the short receivables period supplemented by a lengthy payable deferral period. It is indicative of the in effect(p) guidance of the companys resources. The aggregate of administrative and general expenses between year 6 and 7 increased at $156,440 equivalent to 20.4% increase. However, the increase between year 7 and 8 was significantly dispirit at $11,004 equivalent to 1.2% inc rease. Still, Competition Bikes Inc operating income between year 6 and 7 increased at $191,820 equivalent to 154.6% increase. However, this parameter decreased at $318,392 equivalent to 61.9% decrease. Higher profits were registered between year 6 and 7 relative to year 7 and 8 which registered a dcrease in profits. In addition, the companys cash account differential between 6 and 7 was a decrease of $142,451 equivalent to 54.6%. However, this differential increased between year 7 and 8 at $326,475 equivalent to 275.4%. The net liabilities difference between year 6 and 7 was $128,620 equal to 1.2% increase. According to horizontal analysis, the sum of money liabilities differential from year 6 to 8 was a decrease at $35,500 or 1.9% (Brigham, E. and Houston, J. 2007). Still, Competition Bikes common righteousness differential between year 6 and 7 was a 2.9% increase equating to $119,914 increase. Horizontal analysis of the same parameter indicates a drop between year 7 and 8 equa l to $2,400 or 0.1% decrease. Since year 7 and 8 registered a lesser loss comparative to the gain between historic period 6 and 7, Competition Bikes Inc. broke even in the former years from the aggregate of year 6 and year 7.Competition Bikes Inc plumb Analysis In vertical analysis, an exploration of a companys statement of financial position is considered to validate each element comparative to the total assets as a percentage. For the income statement, vertical analysis involves exploration of the various variables subject to total sales. This analysis helps in evaluation of the financial performance of Competition Bikes Inc with time. The tabulation below indicates the Vertical Analysis of the Competition Bikes Incs Balance tatterAccount elements Year 6 list assets ($4,199,303) Year 7Total assets ($4,319,217) Year 8Total assets ($4,316,817)Notes and accounts Payable 1.6% 4.5% 6.1%Accrued Salaries and other expenses 0.4% 0.3% 0.3%Accrued Expenses 0.5% 0.6% 0.6%Mortgage 42.9% 39 .4% 37.1%Long term Liabilities 2.1% 2.0% 1.9%Stockholders Equity 52.5% 53.3% 54.1% Competition Bikes Inc Vertical Analysis assesses the liabilities, equities and assets of the company. Overall, the operating expenses fluctuated in little figures indicate a strong internal supremacy policy. Therefore, there was little depreciation on the company subject to the operating sales versus costs. The proportion of liabilities decreased over the ternion years indicating an improved ability in Competition Bikes Inc to settle debts. The proportion of common right relative to debts increased over the period signifying a growth in the net capital of the company.Competition Bikes Trend Analysis This is the evaluation of the financial performance of a business over time. Firstly, Competition Bikes Inc remnant sheet figures increased tremendously between years 6 and 8. This signifies growth and expansion trend in Competition Bikes. On average, the company grew at 3.3% which is a sustainable gr owth rate. Over the three years, the sales dropped significantly and especially between year 7 and 8. Nonetheless, the profit margin was relatively strong due to little fluctuations in overhead costs such as materials, productions costs and carrier fees. Therefore, it is potentially mathematical that the coming(prenominal) sales in years 9, 10 and 11 high provided the company maintains the circulating(prenominal) growth and expansion rate. Based on trend analysis, it is anticipated that the companys sales in future will remain strong. This inspires the shareholder to invest more in the company over the next three years. Profits are anticipated to increase at 103.2%, 107.6% and 111.8% over the next three years respectively. In additional, further prodding of the companys financial statements indicates a declining rate in sales growth rate. For instance, the company sales increase at 8.65% between year 6 and 7 as well as 9.85% between year 7 and year 8. Nonetheless, the significan tly small sales growth rate is associative to higher boost in net income which rose by 12.82% and 14.46% in year 7 and 8 respectively.Competition Bikes Ratio Analysis It is the determination of the past years financial performance relative to other companies ratios, trends as well as those of the company/business under review. These ratios include liquidity, profitability and efficacy ratios. Liquidity ratios extracted from the statement of financial position determine the ability of the business to pay its debts at and as when they fall due. The fractions are significantly important in computation of the business ability to meet its short term and long term financial obligations and goals. Quick ratio is computed by dividing quick assets by current liabilities. The company registered a low quick ration of 3.11% and 3.21% for years 8 and 7 respectively. This is because as a motor bike retailer, the company must hold high levels of inventory meaning that most of the working capital ends up tied. Considering that the company enjoys a small inventory turnover ratio, this is not a torture level. Efficiency ratios include the inventory turnover ratio and the average collection period. The former is obtained by dividing total sales by total inventory. This ratio indicates the efficiency and the rapidity with which the company manages to sell its bikes. In year 7 and 8, the companys inventory turnover fell from 46.7 to 45.9 indicating decrease strength in paying off debts. The latter ratio is the anticipated period of cashing owed receivables from clients. Competition Bikes Inc current average collection period is 102.6 days. It is not an ideal duration because it implies delayed conversion of receivables into cash for clearing debts and expenses. Profitability ratios include concede on assets and gross profit margin. The former ratio assesses the aptitude of Competition Bikes to raise revenue from its assets. The companys return on asset parameter in year 7 and 8 was 4.52 and 4.25 respectively. The gross profit margin at the same period was 27.4% and 27% respectively. However, this was a 4.7% drop from the previous 5.3%. The fall in profits translates to poor trading operations and hence the need to evaluate the companys strategies.Competition Bikes Working Capital This is the difference between the current assets and the current liabilities. It is important to a business because it determines the acquirable resources for increasing production, hiring additional staff, merging and buying out other companies as well as place in expansion projects. The company had a working capital of $2,123,000 and $1,768,000 in year 7 and 6 respectively. The increased values in working capital indicate an advanced working capital over the three years.Internal Control Strengths and Weaknesses These are predominant in the accounts departments. The company has adequate resources to finance its operations now and into the future. This is because all activit ies are adequately covered financially. Besides, the company boasts a readily available business with a potential to attract additional clients. The company maintains a check and balance system to control sales, purchase and cash management translates to a strong internal control system. Corrective action in weaknesses lists changes to be made to enhance completion of targets and achieving of total significance in a business. The operations and management for implementation are executed by the management to ensure resolution of identified weaknesses. When the firms adopts a bring in system, execution of identified strategies top resolve the deficiencies is easily executed. Corrective actions were installed to improve production and purchasing deficiencies. This is to help in invariant inquiry as well as cooperation among various departments in the business.Risks Businesses face constant risks and threats and therefore, it is important to identify, address and mitigate the risks. Competition Bikes is susceptible to numerous risks such as increased arguing resonating to low profit margins. Therefore, the company must strategize on maintaining and attracting additional clients. Still, the internal controls are a threat to the company. Impromptu competition between purchasing unit and the accounting department may conduct to delay in payment of invoices. Proper communication lines must be set within the company to address broken communication.Compliance Competition Bikes Inc compliance with Sarbanes-Oxley is indicative of the stringent monitoring controls that the company has installed for internal auditing purposes. This assures stakeholders of the efficient management of the company as well as in compliance with different regulatory framework. Compliance entails provision of an admirable working framework such as motivation of employees, retention of dexterous labor and recycling of products.Recommendation Considering the past performance of the company, i t is recommended that the firm must maintain a sound internal control system. This will report deficiencies such as weaknesses in financial reporting. It will help in securing a lock tight financial recording and documentation. Closer monitoring and evaluation of the overmuch raw materials and manufacturing surpluses will be maintained in reasonable amounts reducing overspending and potential theft.ReferencesBateman, T. S., Snell, S. (2013). M Management. unfermented York, NY. McGraw-Hill Companies.Internal Control Systems. (2011, July 4). Committee of Sponsoring Organizations of the Tread way Commission (COSO). Retrieved December 12, 2013, from http//www.coso.org/documents/COSO_ERM_ExecutiveSummary.pdf.Kieso, D. E., Weygandt, J. J. (2012). Intermediate accounting (9th ed.). youthful York Wiley.Shim, J. K., Siegel, J. G. (2012). Schaums outline of financial management (2nd ed.). New York McGraw-Hill.Source document