This document provides financial analysis of Competition Bikes Inc.
Horizontal Analysis:
Horizontal analysis is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations. (Financial Analysis of Financial Statements)
The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period. The changes are generally shown both in dollars and percentage. (Financial Analysis of Financial Statements)
Let us analyze strengths and weaknesses of the Horizontal Analysis provided by Competition Bikes Inc. Let us consider Net Sales of Competition Bikes over the Year 6, 7 & 8. In the Year 6, Net Sales of Competition Bikes were $4,485,000 which increased in the subsequent Year 7 by $1,495,000 which is percentage increase of 33.3 as compared to 31.8% of increase in the cost of goods, resulting in 37.5% increase of Gross profit. This can be considered as a strength of the company .
On the other side considering Year 8 against Year 6, Net sales are increased to $5,083,000 but they are lowered by $897,000 as compared to Year 7. Year 8 Net sales are behind 15% as compared to Year 7, resulting in $266,600 less Gross profits as compared to $1,638,000 profit of Year 7. Year 8 resulted in 16.3% less profit than Year 7, which can be considered weakness of the company. Overall Year 7 was more successful than Year 8 & Year 6.
Let us analyze the expenses as compared to the income in all three years. In the year 8, though the advertising expenses, sales commission & transportation expenses are reduced 16.3%, 15% & 15% respectively which can be considered as a strength. But expenses on