Financial Analysis of Competition Bikes Essay

Financial Analysis of rivalry BikesIntroduction In fiscal analysis a complete assessment of a line of reasoning presidential end point covering competitiveness, profit king, liquidity and stability concerns. Financial analysis of a business is undertaken by reviewing the business pecuniary parameters. Summarized financial statement reports argon ofttimes presented to executives and top managers for setting up business goals as headspring as making decisions. Analysis of the financial statements of Competition Bikes demand evaluation of the congenital ope dimensionn focusing on good, crosswise, dimension and arch analyses and the works great. These evaluations advertise profit margins enabling projection of budgets and restraining gross gross revenue and cost emf. Annual similitude of production carrying out subject to profit versus overhead helps in promise of budgets for production ingredients on a monthly basis (Shim, J. and Siegel, J. 2009).Competition Bikes crosswise 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 amongst the social class 6 and 7 as well as 7 and 8. The horizontal analysis chart helps in indicating the value of accounts account payable derived function in category 6 and 7 as well as stratum 7 and year 8. The companions can sales soargond up by 33.3% in the midst of year 6 and 7 at $1,495,000. However, make sales differential coefficient between year 7 and 8 was a negative implying that sales decreased by 15% at $897,000. Therefore, it is innate that Competition Bikes make ups annual sales to reap higher meshing. The value of bring in profit registered was a negative figure of $266,600 akin to 16.3% decrease. Interestingly, the community registered a 37.5% gross profits increase between year 6 and 7 at $447,000. The time boundary between purchasing of raw materials, manufactur ing and diffusion of goods is referred to as the operating cycle. The net tip in collection of gain from wagess and sales is the cash conversion cycle for the different ingredients consumed and produced by Competition Bikes. The company witnessed a decrease in the operating cycle between age 6 and 7 from 50.52 to 48.00 days. This is explained by the increase growth of sales coition 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 efficient steering of the companys resources. The heart of administrative and general expenses between year 6 and 7 change magnitude at $156,440 equivalent to 20.4% increase. However, the increase between year 7 and 8 was significantly slumper at $11,004 equivalent to 1.2% increase. Still, Competition Bikes Inc operating i ncome between year 6 and 7 increased at $191,820 equivalent to 154.6% increase. However, this literary argument 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 fit to 1.2% increase. According to horizontal analysis, the total 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 equity differential between year 6 and 7 was a 2.9% increase equating to $119,914 increase. Horizontal analysis of the same contention indicates a fall between year 7 and 8 pair to $2,400 or 0.1% decrease. Since year 7 and 8 regis tered a lesser outlet comparative to the gain between years 6 and 7, Competition Bikes Inc. stone-broke even in the designer years from the aggregate of year 6 and year 7.Competition Bikes Inc vertical Analysis In vertical analysis, an geographic expedition of a companys statement of financial position is considered to formalize 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 slaying of Competition Bikes Inc with time. The tabulation below indicates the Vertical Analysis of the Competition Bikes Incs Balance SheetAccount elements form 6Total 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% retentive 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 give policy. Therefore, in that location was little depreciation on the company subject to the operating sales versus costs. The proportion of liabilities decreased over the tether 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 balance sheet figures increased tremendously between years 6 and 8. This signifies growth and expanding upon trend in Competition Bikes. On average, the company grew at 3.3% which is a sustainable growth rate. Over the thre e years, 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 future sales in years 9, 10 and 11 high provided the company maintains the authentic growth and expansion rate. Based on trend analysis, it is anticipated that the companys sales in future go forth remain strong. This inspires the shareholder to invest more(prenominal) 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 slight sales growth rate i s 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 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 deliberation 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 real 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 mustiness hold high levels of inventory meaning that most of the working capital ends up tied. Consider ing that the company enjoys a small inventory turnover 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 poisonous 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 alter 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 r espectively. 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 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 available resources for increasing production, hiring additional staff, meeting and buying out other companies as well as spend 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 satisfactory resources to finance its operations now and into the future. This is because all activities are adequately cover f inancially. Besides, the company boasts a readily available clientele with a potential to attract additional clients. The company maintains a check and balance body to control sales, purchase and cash centering translates to a strong internal control system. Corrective action in weaknesses lists changes to be made to invoke completion of targets and achieving of total significance in a business. The operations and management for implementation are executed by the management to ensure effect of identified weaknesses. When the firms adopts a tracking system, execution of identified strategies top calve 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 vulnerable to numerous risks such as increased competition 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 building block 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. form Competition Bikes Inc compliance with Sarbanes-Oxley is indicative of the wet 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 demand of employees, retention of skilled labor and recycling of products.Recommendation Considering the past performance of the company, it is recommended that the firm must main tain a sound internal control system. This will report deficiencies such as weaknesses in financial reporting. It will help in securing a lock tight financial record and documentation. Closer monitoring and evaluation of the excess raw materials and manufacturing surpluses will be maintained in reasonable amounts reducing overspending and potential theft.ReferencesBateman, T. S., & Snell, S. (2013). M Management. sunrise(prenominal) York, NY. McGraw-Hill Companies.Internal Control Systems. (2011, July 4). Committee of Sponsoring Organizations of the Tread way Commission (COSO). Retrieved celestial latitude 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