Financial Analysis Sample Essay

Financial Analysis Report Sample: Company Analysis

Financial Analysis Company Analysis Competition Bikes, Inc. is a publicly traded company whose main business is to manufacture and sell lightweight racer bikes. In recent years, the company has enjoyed steady growth due to the company's perceived product superiority among professional riders supported by a statistic that shows that sixty percent of all race winners had been riding a Competition Bikes, Inc bicycle. Although the company has marketed its products aggressively using this strength, it faces intense competition from Wheel Racing, Inc, which in addition to having a huge financial base makes equally good lightweight frame bicycles, as does Competition Bikes, Inc. This paper will carry out an analysis of the company's financials to identify the company's strengths and weaknesses. Financial Statement Analysis for Competition Bikes, Inc Financial statement analysis

Six means the way of evaluating, reviewing balance sheets with the aim of gaining insight, and understanding of the financial welfare of a company and providing management with information for decision-making. Since financial analysis is a decision making, its focus is in isolating that information that is relevant to making decision.

This paper will utilize three classifications of analyzing methods, which include vertical three, horizontal, and trend analysis.Horizontal analysis refers to the analysis and comparison of financial information history throughout a reporting period in sequence.

The comparison done in a period of two years for instance monthly, quarterly, or a year. FINANCIAL ANALYSIS as illustrated by the management of the firm. Financial analysis in this form can be reflected on financial statement such as the consolidate statement of financial position, Consolidated statement of comprehensive income, consolidated statement of cash flows. There are two methods of conducting a horizontal analysis.

The first method is the absolute comparison. An absolute comparison compares absolute currency amounts of the same items at different times. For instance, one might do a comparison of the cash at hand in an ending period of accounting in relation to cash at hand of an ending period.

The second method of conducting horizontal analysis is by the use of percentages. Under this method, all absolute currency/unit amounts used in absolute comparison are changed into percentages. Such treatment of financial information makes it possible to compare the percentage difference of line products in duration of accounting. Because comparison is done on percentages instead of absolute values, this method becomes significant compared to two firms of various sizes.

By using horizontal analysis when analyzing the financial statement (Competition Bikes, Inc) the sixth, seventh, and eighth shareholders, shareholders can have an overview of the performance of the firm. This analysis indicates a significant growth in FY six and seven.

Due to the increase reflected on Competition Bikes Income statement net sales of about thirty percent. However, the decrease of fifteen percent indicated on FY eight can be an indication of the word of mouth.

Advertising that the company has been relying on maybe declining in effect consequently, the company must search for new advertising strategies to ensure growth within the market. The cost of goods sold in FY7 increased to thirty three percent of FY 6. The firm was capable of reducing the cost by fifteen percent in FY 8.

the reduction reflected in six cost of goods sold is an indication that the firm company is more efficient in using its raw materials and other costs that goes into the production of the bikes. The company's Gross profits figures remained fairly stable (27%) in all the three year. The company should aim at increasing the amount of sales as this would increase its results. Operating expenses rose by twenty-three percent in FY 7. However, the firm was able to minimize these expenses by 3.6 % in FY 8. Despite the evidence reflected of cutbacks in operating expenses being positive, it advisable to minimize costs when need arise. However, this change did not compensate the 15 % decline in that period. Company analysis on consolidated statement of financial position shows that, total assets remained considerably stable in duration of three years under review. Cash amount from Competition Bikes decreased by 54.5% in FY 6 and 7. This decrease, partly because of increases in accounts receivable, which indicated a 164.3 % reported in between two years. This situation changed on Financial Year 7 and 8 due the balance between the cash.

At the same time, the company's accounts receivable declined by 15%. The period also saw the change of growth in total assets declining from 34% of the preceding year to 16.0 %. The reports also reveal a significant change in the organization of the firm’s liabilities indicating a decline of 5.6 % in a duration of three years while notes and accounts payable considerably raised by 192% from FY 6 and 7, also in FY 8. The management of the firm needs to look at the causes of these disparities keenly in order to improve the organization's efficiency. However, despite the negative changesreported in the company's financials, the analysis of the

company's financial statements also reveals notable improvements in a number of key areas. First, the company's ability to minimize the cost related to goods sold in FY 8 indicate that Competition Bike’s management are able to read interpret the changes revealed by the analysis and take corrective action to address the points of weakness. Secondly, the company has been able to retain its operating profits constant, meaning that stakeholder wealth has not declined despite the harsh operating conditions that Competitive Bikes is now operating. However, this gives an overview that, profits in that firm remained steady for a period of three years. By continuing to minimize the cost of goods with increasing sales, it should also reflect a growth in gross profits. The decrease in net earnings and net sales shows a crucial weakness.

Management of the company should put more effort to increase the sales. Due to the raising operating expenses, despite their reduction reflected in FY 8, goes on to overwhelm the decrease in sales. The conclusions made from these analysis shows incomplete marketing efforts may forwarding current expenses from the level of administrative salaries and executive reimbursement of modern marketing plans, which results to increased net earnings and sales.

Vertical Analysis

This is an analysis of financial statements whereby, each entry in main categories of the financial accounts (liabilities, assets) in addition to equities in case of a consolidated statement of financial position that may represent a certain segment of the total for that group.

Vertical analysis particularly becomes useful during the comparison of firms of different sizes. While conducting the vertical analysis of the income statement, different expense line products are shown in form of percentage accrued from sales. This is also useful while showing the variations in revenue line products in relation to the percentage of the sales.

On the other hand, asset total is the most common denominator used when doing a vertical analysis. However, it is also common for some analysts to use total liabilities may in the calculations of liabilities in line items in relation to percentage. The average of all equity accounts are useful during when analyzing equities in line again in relation to percentages. Balance sheet analysis indicates that, the total current assets stands at 37.2 % of the average assets. This is a growth from the figure of 35 % indicated in financial year 7 and a 25 % in financial year 6 respectively and which translates to an overall increase of 12.7% in the net assets in a period of two years. The percentage of the total assets locked in inventories, other resources, and accounts receivables could be liquidated if necessary. The percentage of the equipments and properties in FY8 in percentage of the total assets was 63%. This shows a large part of financed assets. The situation is common as firms naturally finance the large equipment and properties acquisitions. Competition Bike equipment and property are located in two areas, which are the California and San Diego, in Atlanta, Georgia. The current liabilities stand for 7 % of the total liabilities and shareholders’ owners’ equity in FY 8.

Current liabilities as a ratio of current assets indicate the company's ability to finance debt should these obligations fall due. With 7 Percent of the total liabilities in a year lies in strong point in case debts arises. However, long-term liabilities are those liabilities payable in more than one year from the reviewed period. The calculations are done in percentages of the total shareholders equity and total liabilities. These mostly are the borrowed funds, which becomes due to the creditors. Competition Bikes FY8 long term liabilities stand at 45 %. Owner’s equity is investment made by the shareholders, which includes retained earnings for the shareholders, though they exist as dividends. The shareholders equity in FY 8 accounts for 54.1 % of the total liabilities. the changes in revenues shows that, competition Bikes, Inc income remained stable at a point ;of 27% after a slight change in increase of FY 7. The FY 7 operating income rose from 2.8% to 5% before plummeting to 1.9% increase in FY 8. This may be because OF the change in FY 7 in percentage and FY8 respectively. The analysis shows there was a comparison of FY7 and FY8 because of the total sales in expenses in duration of three years having reviews of 6.7 %. On the other hand, earnings accrued before the fall of income taxes by 0.9 % in financial year 8 after a rise of 3 % in financial year 7. However, the net earnings in FY8 stood at 0.7% and 0.4 % in financial year 6 respectively. Current assets as at are enough at 37% of the total assets for liquidation if again need be to pay the current liabilities in and of self. Besides this, the current equipment and properties liability stands at 63%, most of these assets are located in real estate’s markets with remaining relatively stronger in comparison with the markets when properties were declining in value. The potential investors evidently see that, the finances owed shareholders 54.1 %, debtors, and 45.9% as precariously close. In other words, there exists an imbalance of the figures concluded. The firms have a lot properties leveraged besides being located in a relatively strong market with potential of losing the significant value in a subsiding markets.

Trend analysis is there to ascertain what the firm has done in the previous years or its expectation of the future. Competition Bike experienced a rise in sales of 33% in financial year 7. During this period, heightened positive economic growth and sponsorship interest favored the success of cyclist having the Competition Bikes. Financial year 8 however indicated a decline of 15% in sales. Poor economic environment and sponsorship contributed to this significant decline. Strength

Having a decrease in sales, the firm never fell below financial year 6 figures. This created difficulties for the predicted growth of financial year 8 and investments were based on predictions. Sales predictions for the following three years indicated the firm expected a 12 % increment in growth through financial year 11. The strength of this predictions is, slow and an increase of 3.2 % in financial year 9, 4.4 % in financial year 10, and 4.2 % in financial year 11. Through investments, this figures are attainable or without much investment. The weakness of these predictions are, the 12% expected growth to occur/, will not add up to the decline of 15 % that was realized in the financial year 8.