...Jet2 task 3 Competition Bikes, Inc.Financial AnalysisJET2 Task 3 Introduction Competition Bikes, Incorporated (CBI) has decided to weigh their options for expansion into Canada by either acquiring or merging with Canadian Bikes, Inc. This report will discuss the proposed expansion and make recommendations based on the company's capital structure. Capital structure can be described as how a business finances its assets. There are two main types of capital: Equity and debt. Capital structure is usually a mix of debt, preferred stock, and common stock that the company can use for expansion and to remain financially healthy. The key is to choose the right mix in order to maximize shareholder return. A1. Capital Structure Capital structure is generally defined as how a company finances its assets. It is measured as a percentage of debt and equity (common and preferred stock). Potential investors tend to look positively on a company that has more equity and less debt. The best capital structure approach for CBI to take is to implement the 50% Preferred and 50% Common Stock scenario. This alternative provides the best overall way to improve CBI's financial position with strong capital structure while maximizing shareholder return. A1a. A review of Canadian Bikes data over five years indicates consistently increased earnings before interest and taxes (EBIT), increased net profit, and increased shareholder returns (EPS). Offering the 50% preferred and 50% common stock...
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...Capital Structure “The capital structure is how a firm finances its overall operations and growth by using different sources of funds…When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how risky a company is” (Capital Structure). After evaluating the changes in different capital structures for years nine through thirteen, it is obvious that the best capital structure overall is 50% Preferred and 50% Common Stock. This choice optimizes the returns for shareholders overall. The only option that comes closest is 20% 9% Bonds and Common Stock. The first year, the 20% option yields a higher return on Earnings per Common Stock share. The second year, the two options yield the same return. After this, however, the 50% option yields .001% more the third year, .002% more the fourth year, and .003% more the fifth year. According to this trend, this option will exceed all other capital structure options by a fairly large sum in future years. The other options are not advisable because while all options do show growth, none show more Earnings per Common Stock share than the 50% option shows. This is also the option that shows the most even split between investments. All other capital structures have uneven splits between investments, which may prove a weakness should the larger of the two investors fail. For example, in the 20% option that was the secondary choice, the alternative capital sources were split...
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...Financial Analysis, Competition Bikes – Summary Report Task 3 The following is an analysis regarding if Competition Bikes Incorporated should change its traditional costing method to activity based costing (ABC). This consideration is being given because the organization is changing its sales strategy in the San Diego plant to produce 9 Titanium bikes for every 5 CarbonLite bikes, and there are indications that manufacturing will experience a 10% increase due to new environmental regulations. Traditional costing methods is the process of determining a unit cost by lumping indirect costs of manufacturing together and then parceling out by volume, number of units, machine hours or direct labor hours. Indirect costs consist of direct labor, and direct materials. The concept of this process is that costs are generated by indirect costs. This method is not beneficial in a multi- product manufacturing plant because the organization cannot determine which product is generating the most overhead costs. The ABC method was introduced in the late 1980s as a way to improve on traditional costing methods. Activity based costing assigns costs to activities and then allocates that unit of cost to the particular product that generated the activity cost. Using this method of cost accounting is beneficial in a multi-product environment because it breaks down the cost of each product produced so an organization can determine if the retail price is profitable against...
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...1 Year 12% Bond 50%CS/50%PERFERRED STOCK 20% BOND/ 12% CS 40% 12% bond and CS 60% 12% bond AND CS 2009 .002 .027 .027 .023 .017 2010 .009 .032 .032 .028 .023 2011 .019 .039 .038 .035 .031 2012 .031 .048 .046 .043 .040 2013 .042 .057 .054 .052 .049 Totals .103 0.203 0.197 0.181 0.16 The best investment would be 50% Common Stock/50% preferred stock for year 13. This was almost even with 20% Bond/ 12% Common Stock until 2013. The earnings per share in the 50%cs/50% preferred stock increases every year since 2009. The increase is steady and consistent. It also shows that since this is not a bond there is no interest on it, like there would be to the other Capital sources. Since there is not interest on the bond, it makes the interest before tax higher because its more money. When it is taxed 35% the net income is $65,252 making it a better choice to make money Doing the data for 20%/12% bond and common stock is the same earnings per share for years 9 and 10. Year 11 and 12 decrease compared to 50% Common Stock/50% preferred stock. The 12% bond is not a good investment based on its earning per common stock share. 2.Net present value (NPV)- The difference between the present value of cash inflows and present value out flows. Internal rate of return (IRR)- the discount rate often used in capital budgeting that makes the net present value of all cash flow. (iac, 2014) Internal Rate of return –in low demand the IRR is only 8.7% and that is below the 10% yield...
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...JET2 Task 3 A. Competition Bikes, Inc. (CBI) currently finds itself in a position in which it can feasibly expand its business. As such, the company has identified Canada as a potential market into which it may expand and has further identified Canadian Biking, Inc. (CABI) as a potential avenue of expansion. Specifically, CBI is investigating whether it should merge with CABI or instead purchase the company. This report will analyze the company’s various options with regard to such an expansion and will ultimately make a recommendation as to whether merger or acquisition of CABI would be best for CBI. A1. Capital structure refers to the money being utilized within a company, and it is divided into two types of capital: debt capital and equity capital (Kennon, 2013). Debt capital refers to the percentage of the company’s capital that is borrowed, while equity capital is money provided by the company’s shareholders (Kennon, 2013). Furthermore, equity capital is represented in two types: retained earnings and contributed capital. The latter, contributed capital is the money that was originally put forth to fund the company (Kennon, 2013). These funds were provided in exchange for stakes in the company’s ownership. Retained earnings refer to the profits that have been earned and collected from previous years and put aside to be used by the company for expansion (Kennon, 2013). As CBI looks to expand into the Canadian market, it must first determine which capital structure...
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...JET2 TASK 2 1 JET 2 TASK 2: Financial Analysis Theo Adams Western Governors University MBA Program JET2 TASK 2 2 (A1) Budget Concerns Investopedia defines Budget as an "estimation of the expenses and revenues over a specific future period of time. Budgets can be made for a group of people, family, person, country, business, government, organization or anything else that makes or spend money. The budget is a micro economic concept that shows the trade-offs made when one good is exchange for another." When looking at the year 9 budget for CB first thing that jumped out at me was the sales goal of 3510 is a 5247450. This is my first immediate concern considering that the storyline has clearly stated it is a down market due to the reductions in monies for sponsored professional riders from their sponsors. This is the main sources sales for the Carbonlite model from CB. The professional riders not having the same resources they had in year 7 when sales went to 4000 from the 3000 sold in year 6. which meant CB's revenue went from 4485000 in year 6 to 5980000 in year 7. This 33.3% jump was followed by 15% drop from 4000 units sold in year 7 to 3400 units sold in year 8. Again this drop was due to the cut in sponsorship money for the professional riders which ended up reflecting at the drop in revenue as well from year 7 to 8 of 5980000 to 4485000. These facts do not seem to warrant an increase in sales from 3400 units to 3510 units and an Increased Revenue to 5247450. Even...
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...Running head: JET2 TASK 2 1 JET2 Task 2 Budgeting Bonnie Wilson Western Governors University JET2 TASK 2 A.1. Operational Strengths and Weaknesses A.1. Budget Concerns 2 Revenue from sales is budgeted too high. In year 8 Competition Bikes experienced a 15% decline in sales revenue, and yet for year 9, they have budgeted for a 3.2% increase. This is likely to be an overly optimistic projection and relies heavily on economic factors outside of the company’s control. Inaccuracy in this projection will have a negative impact on the rest of the budget. Advertising is budgeted too low. The year 9 budgeted amount of $28,412 represents a 3.5% increase over year 8, but it is still almost 20% shy of the amount spent on advertising in year 7 when sales were at an all time high. If the company is to have any hope of realizing its revenue projection, then the amount budgeted for advertising is too low. Executive compensation is budgeted too high. In year 7 executive compensation increased by $50,000 dollars. This made sense then because sales had increased by 33%. However, holding that number steady in year 8 when there was a 15% decrease, and again in year 9 when even a 3.2% increase is optimistic, is not a financially sound budgeting decision. Research and development is budgeted too low. The budgeted amount for year 9 is $85,237. While this represents the same 1.6% of sales revenue that Competition Bikes consistently allots, research and development is an investment in the...
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...Introduction: In this task you will prepare a presentation for the chief financial officer (CFO) to present to a bank vice president. The bank vice president will decide if the bank will approve a $1,000,000 funding request for the European expansion of Custom Snowboards Inc. currently under consideration. The bank has not confirmed it is willing to consider a $1,000,000 loan. The bank will make its assessment of the risk associated with the loan after your presentation. You will prepare another presentation to present directly to the chief executive officer (CEO) of Custom Snowboards Inc. The presentation will include a recommendation on how to proceed with the expansion plans. The presentations can assume the form of a presentation or a report. You may combine the two or submit them separately. Be sure to enter your first initial and last name on the first worksheet in Custom Snowboards, Inc. Financial Data excel document. Task: Note: Be sure to submit a copy of your Excel workbook when submitting your JET2 Task 5 work. When you enter your first initial and last name at the top of the Income Statement you are given a dataset that is based on your name. The evaluator will need a copy of your data to ensure correct evaluation. Note: Your presentations may be in a variety of formats (e.g., report, multimedia presentation). A. Create a presentation or report for the chief financial officer in which you do the following: 1. Summarize the key points of...
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...Introduction: In this task you will prepare a presentation for the chief financial officer (CFO) to present to a bank vice president. The bank vice president will decide if the bank will approve a $1,000,000 funding request for the European expansion of Custom Snowboards Inc. currently under consideration. The bank has not confirmed it is willing to consider a $1,000,000 loan. The bank will make its assessment of the risk associated with the loan after your presentation. You will prepare another presentation to present directly to the chief executive officer (CEO) of Custom Snowboards Inc. The presentation will include a recommendation on how to proceed with the expansion plans. The presentations can assume the form of a presentation or a report. You may combine the two or submit them separately. Be sure to enter your first initial and last name on the first worksheet in Custom Snowboards, Inc. Financial Data excel document. Task: Note: Be sure to submit a copy of your Excel workbook when submitting your JET2 Task 5 work. When you enter your first initial and last name at the top of the Income Statement you are given a dataset that is based on your name. The evaluator will need a copy of your data to ensure correct evaluation. Note: Your presentations may be in a variety of formats (e.g., report, multimedia presentation). A. Create a presentation or report for the chief financial officer in which you do the following: 1. Summarize the key points...
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...[pic]RJET Task 1 | | | | | | | |Help on this Page | |Directions | | | |SUBDOMAINS: 326.1 - MANAGING INTERNAL COST & CONTROLLING FINANCES | |326.2 - MANAGING CAPITAL AND FINANCIAL ASSETS | |326.4 - MANAGING ENTERPRISE RISK & CONTINUITY | |329.4 - MANAGING OPERATIONS | | | |Competencies: 326.1.1: Financial Analysis - The graduate analyzes and benchmarks financial statements, evaluates company | |performance, identifies...
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...JET2 - Financial Analysis - Task 4 JET2 – Task 4 A1. Costing Method Costing is used in business accounting strategies as a way of determining cost of manufacturing a product in relation to the revenue generated by that product. Costing systems determine the overhead of production and then allocate those overhead costs to a business’s product. There are two common methods for allocating these indirect costs to products, traditional costing and activity based costing. Both of these methods assess overhead costs and then attach these costs to products based on certain cost drivers, “a factor that causes cost to incur, such as machine hours, direct labor hours and direct material hours (Johnson 2014).” The first of these methods is Traditional Costing. This costing method drops all overhead costs into one bucket and then disperses them across three drivers, units produced, labor, and machine hours. Although this method works well for lines that are similar and consistent, one of its drawbacks is that this method does not account for customization requirements and overall complexity of the lines. So the company ends up allocating the same cost drivers across all production lines. The second method is Activity Based Costing. Activity based costing on the other hand, utilizes multiple cost pools as it relates to overhead costs based on resources used. Overall, this is a better cost system methodology for the company as it allows for the customization and specialty line...
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...JET2 Task 1 I. Evaluation of company’s strengths and weaknesses: a. Horizontal Analysis Results evaluation Net sales increased 33.3% from year 6 to 7 which signifies strength in the company. Increasing sales increases stockholder value and the overall value of the company. Net sales decreased 15% from year 7 to 8 which is a weakness for the company and affects the overall value. Advertising expenses decreased 16.3% from year 7 to 8 as well. This is a weakness for the company because the decrease in advertising can have a direct impact on the sales. In addition research and development was 37.55 from year 6 to 7 and -16.3% from year 7 to 8. Research and development will also have a direct impact on sales and year 7 to 8 shows a weakness in the company for research and development. Net earnings increased 313.4% for year 6 to 7 which is strength. Net earnings increase the value of the company. The net earnings from year 7 to 8 were -81.6% which is a weakness and decreases the overall earnings for the company. Utilities increased from 3.8% from year 6 to 7 and 11.1% from year 7 to 8. This is a weakness because it is an added expense for the company and affects overall earnings. Total operating expenses increased 23.9% from year 6 to 7 which demonstrates a weakness in the company. This decreases earnings and the value of the company. Totals operating expenses from years 7 to 8 decreased 3.6% which shows strength in the company and increases the value...
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...JET2 Task 2 A1. Concerns There are many concerns with the budget planning for Competition Bike. From year 2006 to 2008, Competition Bike experienced a 13.3% increase in sales. In year 9, sales are projected to increase to 3510 units to give sales revenue of $5,247,450. This is a bold increase after 3400 units sold in 2008 and 4000 sold in 2007. I do not think the sales will be as robust with the economy rebounding. Sales projections should be 3425 with net sales at $5,120,375. Since the Competition Bike Company projected overly optimistic sales, there are several areas in the budget that will be affected. The areas affected are Sales Commission, Transportation Out, Advertising, Research and Development, Raw Materials, and Labor. * Sales Commission: With commissions budgeted for 3% of sales revenue, this amount is budgeted too high since the budgeted net sales is inflated * Advertising: This expense line will be incorrect due to it being based on 2% of the Gross Margin. The Gross Margin will be off due to inflated projections. * Raw Materials: Due to inflated sales projections, the raw materials cost should be lowered to reflect a realistic net sales projection. * Labor: Labor cost should be reduced due to fewer hours being used with my projection of fewer units being sold as compared to the 2009 projections. It takes 15 hours/unit, so with fewer than projected sales, this should be reduced. * Transportation Out: Since the projected sales...
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...| Competition Bikes: Task 1 | | Jamila Mitchell | | Competition Bikes: Task 1 | | Jamila Mitchell | Western Governors University JET2 Financial Analysis Western Governors University JET2 Financial Analysis Competition Bikes: Task 1 Jamila Mitchell Operational Strengths and Weaknesses Horizontal Analysis To evaluate changes in financial statements, a horizontal analysis is necessary so the company can determine whether there is positive or negative growth over time. The changes in percentages is calculated and decisions are made according to the increases or declines. Competition Bikes: Year 7 Overall, year seven was a successful year for the company based on the horizontal analysis of the following financial aspects. Revenue Net sales went from $4,485,000 in year six to $5,980,000 in year seven, an increase of $1,495,000 or a 33.3% increase. The cost of goods sold in year six was $3,294,000, which increased to $4,342,000. This increase of $1,048,000, or 31.8%, was expected considering the increase in net sales. The cost of goods sold remained less than net sales, so this is a strength for the company. While both net sales and cost of goods sold increased, there was still a balance between the two. This shows that the company sold more products at a lower cost, which also attributed to the 37.5% increase in growth profits. Total Selling Expenses Total selling expenses increased from $299,220 in year six to $397,960 in year seven. This was...
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...JET2 Task 1- Financial Analysis A) Competition Bikes Incorporated has been a highly successful company in the past and is an extremely popular brand in the racing community. Over the past year there has been some changes in their financial success due to the economy. 1a) In reviewing the horizontal analysis there were areas of huge strengths and gains in years 6 and 7. Net sales “is the amount of sales generated by a company after the deduction of returns, allowances for damages or missing goods and discounts allowed.” (Investopedia, 1012) The net increase in sales was $1,495,000 at least 33.3%, which was a tremendous strength. This is potentially due to the durability and reliability of the bikes along with the light weight frames made of CarbonLite which the company can customize. There was a weakness from years 7-8 with a 15% decrease which was attributed to a decrease in sponsors due to the poor economy and some sponsor cutting back on funding to their professional riders. The cost of goods sold is the “direct costs attributed to the production of the goods sold by a company. This amount includes the cost of materials used in creating the goods along with the direct labor costs used to produce the goods.” (investopedia, 2012) The costs of goods is relatively high due to a high skill level and manufacturing costs of the product. In the years 6-7 the % increase was 31.8 % at 1,048,000 in the years 7-8 it was at $630,400 a -14.5% decrease. It was thought...
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