...Financial Analysis- JET 2 Task 3 Krista Yunck, MBA MGMT & STRAT 11/01/2012 Student ID: 000285809 My Mentor: Rose Sklar 925-759-2061 or kyunck@wgu.edu Tucson, AZ- Arizona A1. Capital Structure Capital structure is defined as the mix of a company’s short-term debt, and long-term debt as well as their common and preferred equities. For Competition Bikes Inc. capital structure is how they finance their overall operations as well as how they finance their overall growth. Competition Bikes has debt from long-term notes payable and working capital. While there equity lays within their common and preferred stock as well as their retained earnings. Capital structure needs to be implemented into Competition Bikes Inc., since they want to expand their business into Canada. By integrating a capital structure approach they will be able to ensure adequate funding and afford future stability of the company. The company has come up with five approaches in order to generate the capital required for this expansion. The first approach is to issue 9% bonds for 100% of the financing needs. The second approach is to issue common stock for 50% and preferred stock for 50%. The third approach is to issue 5 year 9% bonds for 20% and common stock for 80%. The fourth approach is to issue 5 year 9% bonds for 40% and common stock for 60%, and the fifth and final approach is to 5 year 9% bonds for 60% and common stock for 40%. After reviewing all five possible capital...
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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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...RJET TASK 4 A1. COSTING METHOD Activity based costing or ABC accounting as it is called distributes manufacturing overhead costs to products in a smarter way than in the traditional way. This way of simply assigning costs on the basis of machine hours. Activity based costing assigns costs first to the activities that make up the real overhead. Then it assigns a cost to the activities that affect only the products produce. ABC vs Traditional Costing This is one main difference between ABC (Activity Based Costing) and TCA (Traditional Cost Accounting) it is Activity Based Costing is complex and takes more time and effort to figure out and Traditional Cost Accounting is simple and to the point. Activity Based Costing began some time in 1981 so it is still a relatively new costing bases. But Traditional Cost Accounting has been around since the late 1800’s. In TCA you figure the cost of the items used to produce the product and the resources that were alos used. But in the ABC method you only figure the cost for the actual materials that were used to finish the product. Activity Based Costing is a more accurate way of costing produts and is preferred over the Traditional Cost Accounting method. The ABC method is normally implemented when overheads are high and there is a large amount of misc. products. If the product costing method in incorrect then you may be under cutting your competitors, but you might also be losing your profits at the same time. So it is better for the...
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...Horizontal Analysis Horizontal analysis is one of the two main ways to analysis the financial statements of a business. This analysis provides a year to year look at the financial performance of the business being evaluated. The spreadsheet that is attached provides a horizontal analysis of years 6, 7,and 8 for the balance sheet and income statement for Competitive Bikes and Two Wheel Racing.The horizontal analysis can take into account either the dollar amount of the changes over theyears or the percentage of change for the years. This analysis will consider both items, and willalso be comparing years 6 and 7 and 7 and 8. Year 7 The analysis of years 6 and 7 shows a positive result for Competitive Bikes. RevenueThere was a positive increase in revenue for years 6 and 7. Net sales increased by $1,495,000 between years 6 and 7. This was a 33.3% increase for Competition Bikes. The cost of goodssold increased $1,048,000. This was a 31.8% increase. The fact that net sales increased by33.3%, and cost of goods sold increased by only 31.8% was a significant factor in these twoyears. This was a positive result, because net sales increased more than what the cost of goodssold increased. Competition Bikes found a way to sell more bikes at a lower cost for thecompany. This is why the company had an increase of 37.5% in gross profit.Selling ExpensesTotal selling expenses increased by 33% between years 6 and 7. This was expected, becausemost of the selling expenses are considered variable...
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...RJET 2 Task 3 When a company is looking to expand and grow, there are many aspects of finance that must be considered. The company needs to ensure that there is a demand for the products they offer, that they are financially stable and able to expand without putting themselves into bankruptcy, and if acquiring another company that an acquisition is in both companies favors. Looking at capital structure, capital budget, and working capital are a great place for Competition Bikes, Inc. (CB) to start to evaluate the possibility and profitability of expanding, merging or acquiring Canadian Biking, Inc (CB2). A1: Capital Structure Capital structure is essentially “how a company can finance its operations and growth through the use of a mixture of debt and equity (Investopedia US, 2013).” A company’s debt is its long-term loans and bonds, while its equity is considered to be common and/or preferred stocks. A company looking to expand must ensure that it has the right capital structure to maximize return on investment, increase cash flow, and pay off debts. For CB, there are five options of capital structure for them to analyze to ensure that they have the highest earnings per share (EPS) to keep shareholders happy, and a strong net income to support the business. The reason that EPS will be used to gauge which capital structure is because it shows the company how their financial decisions will impact their shareholders and stockholders. EPS is a strong indicator of how financially...
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...RJET Task 5 A. Create a report for the chief financial officer in which you do the following: 1. Summarize the key points of the company’s financial picture that could impact the bank officer’s position. In order to analyze the key points of the company’s financial picture, we will need to focus on the following three areas: profitability, liquidity, and solvency. The banker will examine these three areas very closely when considering the loan for the European expansion. Profitability is another term for how much money the company actually makes. Sales and expenses drive profitability. During year 13, sales suffered a decline of 6.44%, but in year 14 have increased by 1.28% over the previous year. This will be a salient point for the banker to consider because it shows that sales are rebounding a bit over the decline in year 12. Another decline was shown in gross profit and selling expenses in year 13 of 6.44% and then increased in year 14 by 1.28%. This is directly related to the sales figures. This demonstrates to the banker that the company managed to maintain its cost of goods sold and its selling expenses during those years. One area that does not show as favorably is the area of general and administrative expenses. These increased by 7.24% in year 13 and by 6.5% in year 14. From these figures, the banker will be able to see that the company did not manage those expenses well during that period of time. These factors all played a role in the decline of 67.66% in...
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...RJET Task 1 A. Prepare a summary report in which you do the following: 1. Evaluate the company’s operational strengths and weaknesses based on the following: a. Horizontal analysis results Horizontal analysis is to determine dollar and percentage changes by comparing financial statements. (Investopedia.com, 2011) Between years 6 and 7, Competition Bike Inc.’s net sales increased 33.3% at $1,495,000. Between years 7 and 8, net sales of the product decreased 15.0% with a loss of $897,000. Gross profits increased 37.5% at $447,000 between years 6 and 7, but decreased 16.3% with a loss of $266,600 between years 7 and 8. This clearly demonstrated the weakness of Competition Bikes that it has not met its goal of sales. The total general and administrative expenses increased 20.4% with $156,440 in years 6 and 7. It also increased 1.2% with $11,004 in years 7 and 8. Regarding the utilities cost, there is 11.1% increase in years 7 and 8 comparing the 3.8% increase in years 6 and 7. It also has a continuous growth at other general and admin expenses at 31.1% and 7.6%. This demonstrates the weakness in expenses control. The company cut advertising expense to response to the declining sales in year 7 and 8. It is a weakness that company is unable to respond properly to the market changes. In addition, there is 16.3% decrease of research and development in years 7 and 8 comparing the 37.5% increase in years 6 and 7. Lack of research and development fund is...
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...JET2 Task 1 Horizontal Analysis Results Horizontal Analysis is defined as “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. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration.” (investopedia.com). This data is calculated in both dollars and percentages using data from the balance sheet and income statement. It is an extremely useful tool to evaluate trend situations. The Horizontal Analysis is used to determine Competition Bikes actual financial operating performance from years 6 through 8, with year 6 as the base year. When I looked at the analysis between years 6 and 7, I looked at the financial changes to see what the actual performance was by percentage. The net sales for years 6 and 7 showed a change of $1,495,000 which is a positive increase of 33%. This shows that sales have increased and leads the company to believe that the operating performance was also good and tha customers/dealers really like the product. There was a change of $1,048,000, an increase of 31%, for cost of goods sold. This shows that there is financial strength for the company and also shows that customers/dealers like the products. When looking at cost of goods sold, they should remain lower that the sales increase so that the company can control the cost...
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