Executive Summary Report
Competition Bikes, Inc
Horizontal, Vertical, Trend, and Ratio Analysis Using the attached income statements and balance sheets we can assess the financial health of Competition Bikes, Inc. We will be looking at years 6, 7, and 8.
A.1.a. Horizontal Analysis Results Horizontal analysis is a procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. (Dictionary) If we look at the income statement, year 6 to year 7, sales increased 33% and there was a 31% increase in cost of goods sold. This is a positive for the company. It shows that they have improved their awareness of the brand and knowledge of their products. There was also an increase in advertising expenses that was offset by the sales commissions of 33% and an increase in general operating expenses. Each of these line items increased from year 6 to year 7 and decreased from year 7 to year 8. Since these items increased from year 6 to year 7, this is a positive for the company. It shows that production went up due to more sales coming in. Competition Bikes EBIT increased from year 6 to year 7 by 313% but also decreased from year 7 to year 8 by 81%. Looking at the balance sheet, total assets increased 2% from year 6 to year 7. Total liabilities increased only 1.2% which is a good indication of positive growth for the company. A review of the company’s income statement from years 7 and 8 shows a decrease in sales by 15% as well as a decrease in product costs (14%) and sales expense (15%). The decrease in product cost and sales expense was not significant enough to offset the decrease in sale which resulted in a decrease in net income by 82%. For these two years analyzed, the decrease in sales is a negative for the company. Competition Bikes must look a bit deeper to ascertain