A.1 Throughout this paper, the “Competition Bikes Inc. Storyline” case study will be used to prepare a summary report based on the evaluation of the company’s operations.
The objective will be to evaluate the company’s operational strengths and weaknesses based on the following:
a. Horizontal analysis results
b. Vertical analysis results
c. Trend analysis results
d. Ratio analysis results
As defined by Business Dictionary (2014) Horizontal Analysis is ” Comparative study of a balance sheet or income statement for two or more accounting periods, to compute both total and relative variances for each line item.” Competition Bikes Inc. will be analyzed in each area in regards to years 6, 7, & 8. Analyzing the strengths and weakness of the operations throughout the discussed years will take place throughout the assignment. The Strengths of Competition Bikes Inc. will first be analyzed and discussed. Firstly, Revenue will be analyzed for years 6 & 7, in which there are strengths concerning Net Sales. From year 6 to 7, Net Sales increased by $1,495,000, a 33.3% increase for Competition Bikes Inc. Year 7 was a much stronger year concerning Net Sales for Competition Bikes Inc., compared to year 6. A second strength within the Horizontal Analysis is the Cost of Goods Sold for year 7, compared to the previous year. The COGS increased to $1,048,000, which is a 31.8% increase. This is significant due to the fact that the Net Sales enjoyed a much larger increase compared to the Cost of Goods Sold, which in turn displayed the ability of Competition Bikes Inc. to sell the manufactured bikes at a lower cost to the company, in turn adding to the bottom line. The final strength within the Horizontal Analysis is the Gross Profit from years 6 to 7. There was a financial increase in Gross Profit of $447,000 at a 37.5% increase. It was overall a very productive year for Competition Bikes Inc. for year 7, compared to year 6. As strong as year 7 was operationally speaking, Competition Bikes Inc. experienced a downfall in all three categories of Revenue which concluded a weak year in operations as will be discussed for year 8. Firstly, Net Sales for year 8 are down $897,000, which is a -15%. The company experienced great success from year 6 to 7, but suffered a major loss into year 8. Competition Bikes Inc. will unfortunately see a loss in all categories discussed for year 8. Secondly, Cost of Goods Sold experienced a negative of $630,400, along with a -14.5%. The only positive that can be gained from this weakness analysis is the COGS were a smaller loss than the Net Sales, albeit just a .5% difference. Finally, Competition Bikes Inc. experienced another negative in regards to Gross Profit in year 8, adding to the before mentioned weaknesses of Horizontal Analysis. The Gross Profit was a negative $266,600, and a -16.3%. Very unfortunate for a company that started off with very successful revenue numbers only to end, after just a couple years in the negative which was realized as the largest weakness for Competition Bikes Inc.
Defined by Investor Words (2014) Vertical Analysis is “the assessment of financial statements where you take the total number of sales and convert the number to a percentage of goods sold.” Competition Bikes Inc. has a current 3 year history of analysis to be observed and scrutinized. There are strengths and weakness throughout the Vertical Analysis workbook, which will be discussed. Firstly, strength of the Vertical Analysis in regards to the Balance Sheet is the year 8 Total Current Assets, which is $1,575,831, 36.8%. This is a positive with respect to growth in Assets for Competition Bikes Inc. and shows a positive progression from year 6 to year 8 in regards to this analysis. A second strength within the Vertical Analysis is the Cash and Cash Equivalents of year 8. Compared from year 7 to year, there was a positive progression and growth for Competition Bikes Inc. The year 8 dollar figure is $414,038, 9.7%. Positive
