Jet 2 Task 1

In: Business and Management

Submitted By lisastann
Words 6540
Pages 27
Financial Analysis Summary Report
Task 1
Competition Bikes Incorporated
Lisa A Castro, MSW
Western Governors University

Horizontal Analysis (A. 1. a) A horizontal analysis can be defined as “the study of percentage changes in comparative statements” (Charles T. Horngren, 2008, p. 746). It is useful in determining a company’s financial stability. This section will analyze Competition Bikes Incorporated’s (CBI) percentage changes from years 6 to 7 and then 7 to 8. The report will include an analysis of CBI’s comparative income statement and balance sheet.
Between years 6 and 7 CBI’s Net Sales increased by 33.3% for a change of $1,495,000. The increase of 33% indicates strength for the company because it means that the company has become more profitable. This also indicates that demand for CBI’s product has increased and that their marketing strategies have been more successful. It is good news for the shareholders because more profits means more revenue.
Between years 6 and 7 CBI’s Cost of Goods Sold increased by 31.8% for a change of $1,048,000. Even though the Cost of Good Sold increased significantly it is still less than the Net Sales increase of 33.3%. This resulted in a Gross Profit of 37.5% or $447,000. This indicates strength for CBI, as the management was able to control their costs to turn a profit on the increased sales. This is also a positive for the shareholders because increased profits mean more revenue for the shareholders.
Between years 6 and 7 CBI’s Advertising expenses increased by 37.5% for a change of $8,940. While this was a significant expense increase, the percentage is equal to the gross profit for these same years. Furthermore, the total Selling Expenses between year’s 6 and 7 demonstrates an increase of 33% which is still less than the 37.5% increase in gross profit for those same years. This indicates…...

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