Competition Bikes Inc.\'s Financial Status Requires Evaluating

¶ … 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 Analysis

The horizontal analysis is the study of percentage changes of comparative statements in the case of Competition Bikes Inc.'s years six and seven, and seven and eight. Using the horizontal analysis chart, Competition Bikes Inc., shows the accounts payable, between years six and seven increased as it did between years seven and eight.

According to the horizontal analysis, Competition Bike Inc.'s net sales between year six and seven increased 33.3% at $1,495,000. Net sales of the CarbonLite product, between years seven and eight, decreased 15.0% with a loss of $897,000 over the previous year. Gross profits between years six and seven show a 37.5% increase at $447,000, and for years seven and eight a 16.3% decrease, at a loss of $266,600 (Shim, J. And Siegel, J. 2009).

The operating cycle represents the period of time involved in purchasing raw materials, manufacturing the goods and distributing them. The cash conversion cycle is the net time period between the collection of cash receipts from sales and the cash payments for the different materials used by the firm. The operating cycle for Competition bikes has decreased from 50.52 to 48.00 in the years 2006, and 2007, respectively. This is a clear indication of growth in sales that is higher than the growth rate of inventory (a positive sign). The cash conversion cycle is negative in the three years, which indicates the high liquidity of the business, since it enjoys a short receivable period and a long payable deferral period. This shows that the company is efficiently managing its resources.

The total general and administrative expenses for years six and seven on the horizontal chart shows an increase of 20.4% at $156,440. These expenses for year seven and eight increased 1.2% at $11,004.

Change in sales

Percentage change (%)

Years six through seven

1,495,000

33.3

Years seven through eight

(897,000)

15.0

The operating income for year six and seven increased 154.6% at $191,820, and for year seven and eight the operating income shows a 61.9% decrease with $218,392. The net income between year six and seven increased 313.4% at $198,420. The net income for year seven and eight declined 81.6% with a decrease of $160,194, over the previous year. The company's performance indicates better profits between years six and seven, with a decrease between years seven and eight.