Competition Bike Inc Task 1 Essay

5561 Words Aug 11th, 2012 23 Pages
Competition Bikes, Inc. Summary Report

A1a. What is horizontal analysis? The comparison of two or more year’s financial data is known as horizontal analysis, or trend analysis. Horizontal analysis displays changes between years in both dollar and percentage. Showing change in dollar form helps the company pay close attention to key factors which have impacted the growth and profitability of the business. Showing changes between years in percentage form helps the company gain valuable insight. Horizontal analysis can be used for comparing and assessing the company’s growth during a particular time. In order to assess a company’s performance relative to its competitors, horizontal analysis is performed on multiple companies in the same
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Comparative Income Statement Horizontal Analysis for years 6, 7, and 8 shows that while the company was able to increase its sales from year 6 to 7 by 33.3% , in year 8 the company's sales decreased by 15% which resulted in an unfavorable decrease in gross profit of 16.3%. Due to an increase in sales from year 6 to year 7, the total sales expenses increased by 33% which is a function of sales volume and appears reasonable. With increased sales a company would expect to have higher selling expenses. Because sales decreased during year 8, sales expenses also decreased by 14% which also appears reasonable. Further analysis of the General and Administrative Expenses shows that utilities expense increased by 11.1% and Other General and Administrative expenses also increased by 7.6%. Since the company produced and sold fewer products, utility expenses and Other G&A expenses should not be increasing. The company needs to assess their operations to find out why these expenses were higher than previous years. The above increases are unfavorable for the company. Interest income between year 6 and 7 increased, but the company had a slight decrease in year 8. We would expect this to happen in year 6 to year 7 because the short term investments increased. However, because interest income decreased in year 8, and the company has more cash on hand, the executives need to review the Treasury function and make sure the best investments and return on assets is being obtained.

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