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Competition Bikes, Inc. is a company that manufactures and sells high-end 2-wheel bicycles for sporting enthusiasts, racers, and professional bikers. This is a highly competitive industry and is likely price elastic because it is more of a luxury good -- not a necessity with a limited but global market. Key data for our analysis is based on the Income Statements and Balance Sheets for Years 6, 7, and 8. Our data may be viewed thus:
The clear issue for the company is that the growth experienced in Year 7 did not match sales in Year 8. Further data analysis shows that the company is relatively healthy, but does show some weaknesses when compared with industry standards:
CBikes
(Ave 7/8)
Industry
Analysis
Current Ratio
CBI has assets that exceed its liabilities by almost 6 times, higher than industry average.
Collection Period
Lower than industry by almost 14 days, or close to three business weeks. This...
While sales have increase, COG as a percentage of sales have remained fairly constant at about 74%, indicating that material and labor costs are under control. Lower sales did result in advertising cuts. Using Income statements, we see that while net sales are down, gross profits are fairly level as a percentage of sales (about 27%) and sales expenses are reasonably steady for sales. General and administrative expenses have increased 3%, indicating that cost-cutting and/or procedural changes are necessary. The increase in these expenses forced operating income to fall to 1.9% and net earnings fell to .7% of net sales -- a red flag for lending and debt management. One…
Competition Bikes, Inc. Should the company change to activity-based costing? Before deciding whether the company should change to activity-based costing (ABC), it is critical to understand what ABC is. ABC is a "special costing model that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs
Competition Bikes Inc.'s financial status requires evaluating its internal operations reflecting the horizontal, vertical, ratio, and trend analysis, as well as its working capital. These reviews provide profit margins allowing for projecting any necessary budget restraints in overhead costs and sales potential. Yearly production performance comparisons, based on overhead vs. profit, enable a budget projection for ordering production materials on a month-to-month basis. (Shim, J. And Siegel, J. 2009). Horizontal
Competition Bikes Budgetary Analysis Budgetary Areas Raising Concern in the Budget Plan. Competition Bikes, Inc. - Year 8 Budget Concerns The master budget for year 8 of Competition Bikes, Inc. has all of the required schedules and data. The data is generally sound and there are but a few concerns with regards to its presentation and content. Concerns -- Lack of Quarterly Activity Reporting The merger committee's first concern is that all of the reported
Internal Control The purchase orders are not always considered by Competition Bikes Inc. In the company's purchase system, control authorization and record retention are not frequently addressed. Generally speaking, purchase orders are appropriate for merchandise purposes. On the contrary, the Competition Bikes Inc. pays for unordered goods or excessive quantity without referring to company financial policy. Competition Bikes Inc. does not consider all pertinent information concerning formal commitments during the transaction. Obviously,
Target market As mentioned in the case study, the company's target market is formed from college students between the ages of 18 and 25 and also from 'techies' in the 30-40 age interval. The main characteristics of the target market, as revealed by the SWOT analysis, are that the present and future customers have a real passion for bike riding and they appreciate the quality of a high-tech product. References Specialized Bicycle Components,
37). This approach is highly congruent with the guidance of marketing experts such as Wheaton (2004) who advises, "There are synergies between different lifestyle sports industries and their media. Corporations make equipment for several lifestyle sports, sometimes under different brand names. Clothing companies like Quiksilver sell to a range of lifestyle sport markets including skating, surfing, windsurfing, snowboarding and have been quick to exploit the potential of emergent and rapidly