Following is a comprehensive analysis of the financials of the profitability, competitiveness and overall stability of the Competition Bikes, Inc. based on their finance statements. This analysis provides information based on working capital, horizontal analysis, vertical analysis, ratio analysis and trend analysis. This analysis provides essential information on forecasting budget limits and overhead expenses based on overall sales potential. The analysis is based on the last three fiscal years of data provided by Competition Bicycles, Inc.
A.1.A. : Horizontal Analysis
A horizontal analysis is used to see variations in account line items from year to year. Strictly speaking, according to Accounting for Management (2014), a horizontal
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Specifically looking at the income statements, these particular data points do speak well for the overall stability of the company. Sales expenses are consistently increasing at a slower rate than actual sales, and product costs are decreasing relative to net sales. The troubling statistic, however, is the 81.6% decrease in net earnings and EBIT from years 7 to 8. Examining years 6 and 8 shows a decrease of 24% in EBIT, indicating an overall health risk to the business, as net earnings (before and post tax) have dropped. Years 6 to 7 showed a dramatic increase of 313.4%, indicating either a wildly successful or wildly anomalous year. The overarching economic decline is likely a huge factor in this. Troubling to note is that during the decline experience in years 7 to 8, operating expenses dropped only 3.6%. While this decrease is good, it doesn’t match the 15% decrease in sales. Keeping operations expenses in line with sales would have helped to mitigate some of the economic downturn. Total selling expenses dropped almost equally with net sales between years 7 and 8 (a 14.9% and 15% loss respectively). Most operating expenses see similar trends: A drop of approximately 15% to match the drop in net sales. Several items to keep watch on are the utilities costs, which increased by 11% in years 7 to 8, and the general admin expenses, which increased by 7.6%