Financial Analysis of Competition Bikes Essay

fiscal Analysis of disceptation BikesIntroduction In monetary fall outline a write out assessment of a descent institution covering competitiveness, inter sugarability, liquidity and stability concerns. monetary analysis of a personal credit line is downstairstaken by reviewing the business pecuniary avowals. Summarized fiscal debate reports be frequently presented to executives and tip managers for view up business goals as hearty as making decisions. Analysis of the financial statements of challenger Bikes demand military rating of the k instanterledgeable ope balancen focusing on vertical, horizontal, balance and skip analyses and the working neat. These valuations communicate lettuce margins enabling projection of budgets and restraining sales and be potential. Annual comparison of production effect dependent to profit versus operating cost helps in forecasting of budgets for production ingredients on a monthly basis (Shim, J. and Siegel, J. 2009). aspiration Bikes crosswise Analysis This is the examination of percentage changes in proportional statements of a business. In this case, it is the rating of Competition Bikes comparative degree statements among the family 6 and 7 as soundly as 7 and 8. The horizontal analysis chart helps in indicating the value of accounts account payable first derivative in category 6 and 7 as hale as twelvemonth 7 and year 8. The guilds net sales soared up by 33.3% amongst year 6 and 7 at $1,495,000. However, net sales variantial in the midst of year 7 and 8 was a negative implying that sales devolved by 15% at $897,000. Therefore, it is essential that Competition Bikes make ups annual sales to reap high gearer(prenominal) pelf. The value of gross profit registered was a negative figure of $266,600 equivalent weight to 16.3% decrease. Interestingly, the telephoner registered a 37.5% gross profits harvest-festival amid year 6 and 7 at $447,000. The time layover mingled with purchasing of raw materials, manufacturing and distribution of goods is referred to as the operating cycle. The net cessation in collection of receipts from payments and sales is the property rebirth cycle for the different ingredients consumed and produced by Competition Bikes. The caller-up witnessed a decrease in the operating cycle between years 6 and 7 from 50.52 to 48.00 days. This is explained by the change magnitude ingathering of sales sexual congress to the inventories growth rate. The cash conversion period between year 6 and 8 was proportionally 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 cost-efficient counselling of the attach tos resources. The aggregate of administrative and general expenses between year 6 and 7 change magnitude at $156,440 equivalent to 20.4% append. However, the increase between year 7 and 8 was b etaly confuseder at $11,004 equivalent to 1.2% increase. Still, Competition Bikes Inc operating income between year 6 and 7 change magnitude at $191,820 equivalent to 154.6% increase. However, this parameter fall 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 corpoproportionns 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 going between year 6 and 7 was $128,620 bear on to 1.2% increase. According to horizontal analysis, the nub 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 crude equity differential between year 6 and 7 was a 2.9% increase equating to $119,914 increase. Horizontal analysis of the analogou s parameter indicates a fall between year 7 and 8 equal to $2,400 or 0.1% decrease. Since year 7 and 8 registered a lesser loss comparative to the gain between years 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 geographic expedition of a familys statement of financial position is considered to validate severally element comparative to the total assets as a percentage. For the income statement, vertical analysis involves geographic expedition of the various variables subject to total sales. This analysis helps in evaluation of the financial cognitive process of Competition Bikes Inc with time. The tabulation below indicates the tumid Analysis of the Competition Bikes Incs equilibrium SheetAccount elements Year 6 tote up 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 Salarie s and other expenses 0.4% 0.3% 0.3%Accrued Expenses 0.5% 0.6% 0.6% owe 42.9% 39.4% 37.1%Long bourne Liabilities 2.1% 2.0% 1.9%Stock operate offers Equity 52.5% 53.3% 54.1% Competition Bikes Inc Vertical Analysis assesses the liabilities, equities and assets of the friendship. Overall, the operating expenses fluctuated in superficial figures indicate a unanimous internal control policy. Therefore, there was little depreciation on the company subject to the operating sales versus be. The proportion of liabilities decreased over the three years indicating an change ability in Competition Bikes Inc to narrow debts. The proportion of common equity relative to debts increased over the period signifying a growth in the net enceinte of the company.Competition Bikes Trend Analysis This is the evaluation of the financial mathematical operation of a business over time. Firstly, Competition Bikes Inc balance rag figures increased tremendously between years 6 and 8. This signifies gro wth and expansion trend in Competition Bikes. On average, the company grew at 3.3% which is a sustainable growth rate. Over the three years, the sales dropped importantly and especially between year 7 and 8. Nonetheless, the profit margin was relatively concentrated due to little fluctuations in overhead costs much(prenominal) as materials, productions costs and carrier fees. Therefore, it is potentially possible that the proximo sales in years 9, 10 and 11 high provided the company maintains the up-to-date growth and expansion rate. Based on trend analysis, it is anticipate that the companys sales in future testamenting remain firm. This inspires the shareholder to invest to a greater extent in the company over the close three years. Profits are anticipated to increase at 103.2%, 107.6% and 111.8% over the contiguous three years respectively. In additional, gain prodding of the companys financial statements indicates a declining rate in sales growth rate. For instance, th e company sales increase at 8.65% between year 6 and 7 as easily as 9.85% between year 7 and year 8. Nonetheless, the significantly small sales growth rate is associative to higher make head mood in net income which rose by 12.82% and 14.46% in year 7 and 8 respectively.Competition Bikes Ratio Analysis It is the function of the past years financial cognitive operation relative to other companies ratios, trends as well as those of the company/business under review. These ratios acknowledge liquidity, profitability and efficiency ratios. liquidness ratios extracted from the statement of financial position project the ability of the business to pay its debts at and as when they fall due. The fr executions are significantly important in computation of the business ability to meet its short term and long term financial obligations and goals. bustling ratio is computed by dividing quick assets by flow rate 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 go bike retailer, the company essential hold high levels of inventory meaning that roughly of the working slap-up ends up tied. Considering that the company enjoys a small inventory dollar volume ratio, this is not a worrying level. might 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 interrupted conversion of receivables into cash for clearing debts and expenses. Profitability ratios include return on asse ts 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 operations and thusly the need to evaluate the companys strategies.Competition Bikes Working Capital This is the leaving between the current assets and the current liabilities. It is important to a business because it determines the on tap(predicate) resources for increase production, hiring additional staff, merging and buying out other companies as well as investing 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.inner make Strengths and Weaknes ses 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 activities are adequately cover financially. Besides, the company boasts a readily available clientele with a potential to coax additional clients. The company maintains a check and balance system to control sales, obtain and cash attention translates to a strong internal control system. Corrective action in weaknesses lists changes to be made to sharpen completion of targets and achieving of total significance in a business. The operations and management for capital punishment are executed by the management to ensure resolution of identified weaknesses. When the firms adopts a tracking system, execution of identified strategies top resolve the deficiencies is easily executed. Corrective actions were installed to reform production and purchasing deficiencies. This is to help in constant inquiry as well as cooperation a mong various departments in the business.Risks Businesses organization constant risks and threats and therefore, it is important to identify, address and assuage the risks. Competition Bikes is susceptible to numerous risks such as increased opposition 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 result to delay in payment of invoices. Proper conversation lines must be set at heart the company to address broken communication. submission Competition Bikes Inc compliance with Sarbanes-Oxley is indicative of the blotto 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 estimable working framework such as motivation of employees, retention of skilled undertaking and recycling of products.Recommendation Considering the past performance of the company, it 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 entryation. Closer monitoring and evaluation of the excess raw materials and manufacturing surpluses will be maintained in reasonable amounts simplification overspending and potential theft.ReferencesBateman, T. S., & Snell, S. (2013). M Management. New 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.). New York Wiley.Shim, J. K., & Siegel, J. G. (2012). Schaums outline of financial management (2nd ed.). New York McGraw-Hill.Source document