Financial Analysis JET2 Task 1 Essay

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Pages: 23

Financial Analysis JET2 Task 1
Western Governors University

A.1.a. Horizontal Analysis Results
Comparative Income Statements
Revenue Year 6 & 7: During this period Competition Bikes displayed a 33.3% increase in net sales over the previous period. During the same period the cost of goods sold showed gains of 31.8% in regard to volume. The two factors combined displayed a substantial increase in net sales. This signifies consumer approval of the product being brought to market.
Revenue Year 7 & 8: Competition bikes suffered a decline of 15% in their net sales. The correlating effect in this case is the cost of goods, which also showed a decline of 16.3%. This decline is attributed to the decline in net sales, which means less products are required to be produced thus costing the company less money.
Selling Expenses Year 6 & 7: Expenses related to advertising rose 37.5% over this period. It is likely that the increase in ad spending caused the increase in revenue. Sales related expenses such as transportation, commission, and supplier support expenses increased by 37.5% due to the increase in net sales during this period. Selling Expenses Year 7 & 8: Expenses related to advertising declined by 16.5%. Sales related expenses such as transportation, commission, and supplier support expenses declined by 37.5% due to the decline in net sales during this period.
General & Admin Expenses 6 & 7: Competition Bikes’ employment tax rose 25.8%; salaries for administration rose 21.4%, and salaries for executives rose 29.4%. Research and development expenses rose by 37.5% which signifies a pledge towards product innovation. General & admin expenses rose by 31.1% which was expected considering the rise in all other spending during this period.
General & Admin Expenses Year 7 & 8: Salaries for the administrative and executive staff were even during this period, there was no growth or decline. Utility expenses rose 11.1%, this is abnormally high in view of net sales decreasing by 15%, and the period prior displayed a 3.8% rise. This rise has two possible causes; the utility company raised their prices, which is outside of management control or the misuse of company resources; company conservation education efforts may be in order.
During this period there was a reduction in research and development spending in correlation to the drop in revenue. This was necessary but is step in the wrong direction because it can limit innovation and the future success of Competition Bikes. Other expenses during this period rose 7.6%, combined with the rise in other expenses already stated and the decline in the revenue, management is creating a situation where working capital is being depleted.
Operating Income & Total Operating Expenses Year 6 & 7: Total operating expenses improved by 23.9% during this period. This rise was expected due to the rise in net sales. Income from operations rose 154.6% this is tremendous positive which correlates to the rise of 37.5% in gross profits.
Operating Income & Total Operating Expenses Year 7 & 8: During this period operating expenses decreased by 3.6%. This figure combined with the 16.3% drop in gross profits and 69.1% decline in operating income during this time signifies meager management because there should have be a higher decline of operating expenses to preserve company resources. Net Earnings, Expenses, and Interest income Year 6 & 7: Income generated from interest increased by 7.7%. This combined with a decrease of 10.9% in interest income expenses created an affirmative indicator of declining liabilities. Income rose 313.4% before income taxes exhibiting a lucrative year correlated with the rise in net sales.
Net Earnings, Expenses, and Interest income Year 7 & 8: income from interest decreased 3.4% from a decline in net sales of 15%. This is a negligible loss of income of about $200. Expenses related to interest dropped 8.9% shows a decrease in financed liabilities. This is a progressive…