Thursday, June 6, 2019

Financial Analysis of Competition Bikes Essay Example for Free

financial epitome of Competition Bikes EssayFinancial Analysis of Competition BikesIntroduction In financial analysis a complete assessment of a business organization c everyplaceing competitiveness, profitability, liquidity and stability concerns. Financial analysis of a business 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 healthful as making decisions. Analysis of the financial statements of Competition Bikes demand military rank of the internal opeproportionn focusing on vertical, horizontal, ratio and trend analyses and the working(a) capital. These evaluations communicate profit margins enabling projection of budgets and restraining sales and costs potential. Annual comparison of production performance subject to profit versus everywherehead helps in anticipate of budgets for production ingredients on a monthly basis (Shim , J. and Siegel, J. 2009).Competition Bikes Horizontal Analysis This is the examination of percentage changes in comparative statements of a business. In this case, it is the evaluation of Competition Bikes comparative statements surrounded by the course 6 and 7 as sound as 7 and 8. The horizontal analysis graph helps in indicating the value of accounts payable differential coefficient in twelvemonth 6 and 7 as well as year 7 and year 8. The smart sets net sales soared up by 33.3% amidst year 6 and 7 at $1,495,000. However, net sales differential between year 7 and 8 was a negative implying that sales decreased by 15% at $897,000. Therefore, it is essential that Competition Bikes increases annual sales to reap high profits. The value of bring in profit registered was a negative figure of $266,600 equivalent to 16.3% decrease. Interestingly, the participation registered a 37.5% gross profits increase between year 6 and 7 at $447,000. The time extremity between purchasing o f raw materials, manufacturing and distribution of goods is referred to as the operating cycle. The net period in collection of good from payments and sales is the cash conversion cycle for the different ingredients consumed and produced by Competition Bikes. The alliance witnessed a decrease in the operating cycle between long time 6 and 7 from 50.52 to 48.00 days. This is explained by the increased harvest-time of sales relative to the inventories growth rate. 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 cost-efficient management 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 lower at $11,004 equivalent to 1.2% incre ase. 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. agree to horizontal analysis, the supply 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 truth differential between year 6 and 7 was a 2.9% increase equating to $119,914 increase. Horizontal analysis of the same parameter argues a fall between year 7 and 8 equal to $2,400 or 0.1% de crease. 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 perpendicular Analysis In vertical analysis, an exploration of a companys statement of financial position is considered to validate each element comparative to the add up 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 SheetAccount elements Year 6 marrow 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 Lia bilities 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 potency policy. Therefore, there was little depreciation on the company subject to the operating sales versus costs. The proportion of liabilities decreased over the three years indicating an improved ability in Competition Bikes Inc to settle debts. The proportion of common equity 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 respite 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 growth rate. Over the three ye ars, the sales dropped significantly and especially between year 7 and 8. Nonetheless, the profit margin was relatively strong delinquent to little fluctuations in overhead costs such 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 current 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 significantly atrophied sales growth rate is associative to hi gher 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 efficiency 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. dissolute 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 rate ratio, this is not a worrying 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 return 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 g ross 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 whence 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 operational resources for increasing 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.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 activities are adequately cover financially. Besi des, the company boasts a readily available clientele 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 introduce 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 constant 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 disceptation 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 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 expert labor 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 documentation. Closer monitoring and evaluation of the unneeded raw materials and manufacturing surpluses will be maintained in reasonable amounts reducing 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 musical mode 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

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