Competition Bikes, Inc. will be analyzed by several methods: horizontal analysis, vertical analysis, trend analysis, and ratio analysis. The first is horizontal analysis which “ratios or line items in a company's financial statements are reviewed over a certain period of time. “ (Investopedia.com) The period of time in which this report will be basing its findings are solely on its income statements from year six, seven, eight and nine. As shown in the horizontal analysis file, it is easy to see that Competition Bikes, Inc. had an increase of thirty three percent from year six to year seven while in the following two years (eight and nine), the company experienced a fifteen percent decline in net sales. Additionally, in review of the company’s gross profits, there is an increase between the same years of six and seven, while there is s significant decrease in years seven and eight. Although there could be several factors which may have impacted in their decrease from year seven to eight, it very well may have been caused by an increase on overall production costs, lower sales in general, competition or any combination of these factors.
The company’s ability to produce a profit and sustain its profitability levels are vital to its success. One way to review this is to take a look at the company’s ability to turn over inventory (operations) otherwise calculating the number of days its assets are in inventory, working through the sales process and payment is received. For Competition Bikes, Inc., their figures decrease year over year, which implicates that sales are increasing – which is a positive sign. Another optimistic indicator is their cash conversion cycle. This measures the amount of time the cash flow is tied up in production and sales before it is converted into sales by buying customers.
In the instance of Competition Bikes, Inc., all indicators