Competition Bike Incs Essay

Horizontal analysis comp atomic number 18s a come withs actualizeance from course of instruction to class. I provide be reviewing Competition Bikes Inc(CBI) balance sheets and income statements. During CBI family 6, 7 and 8 I capture found their net sales , terms of niftys to be fluctuating, and a couple of(prenominal) various other items. The net sales from year 6 to 7 extend 33.34 %. The cost of goods from year 6 to 7 was 31.82 %. The gross profit increase 30.89. Comparing year 6 and 7 I found that year 7 improved, but when I compared year 7 to 8 the results were not good for year 8. The participation had experienced a 15 share reduction in net sales. Cost of goods drops 14.8 % from year 7 to 8.Advertising ExpensesCBI advertising expenses change magnitude by 37.5 % from year 6 to 7. CBI made a great investment from year 6 to 7 because the net sales increase at a higher rate the increased advertising cost. CBI reduced their advertising expenses by 16.3 % from year 7 t o 8. I believed this was d unrivaled because of the fragile economy. Many companies are nerve-wracking to put one over cuts back during a weak economy. These reduces expenses get out fight down them over until the economy becomes stronger.Website/SalesThe website creation and of importtenance expenses during year 6, 7 and 8 stayed the comparable price. Sales commission increase 33.371 % during year 7 from the previous year. Sales commission decrease by 15 % the following year (8).Distribution meshworkThe Distribution network expenses had a positive increased in year 7 by33.3 % jump from the previous year. Distribution expenses are normally supposed to adjudge similar amount, but when you have an increase in sales it is acceptable to increase the distribution expenses. Distribution network expenses decreased 15 percent in year 8. This was caused due to less revenue.TransportationCBI had 33% transportation increase from year 6 to 7. This was caused CBI had more products sol d and required more products to be shipped. CBI proverb 15 % transportation decrease from year 7 to 8. CBI had less products sold and this caused transportation to decrease in year 8. administrative Expenses from year 6 to 7 saw 21.43% increase. Administrative Expenses maintain the same expenses from year 7 to 8. Executive expenses increased 29.42 % from year 6 to 7. Year 7 and 8 maintain the same level of expenses.Employment taxes rose by 25.81 % increase from year 6 to 7. Year 7 and 8 maintain the same level of employment of expenses. Administrative expenses are expected due to fraternity having increase production and sales. Utilities expenses rose 3.84 % from year 6 to 7. CBI ope balancen worked proficiently in year 7, and this inspection and repaired them experienced unless an increase of 3.8% in utilities. This was caused due to increase production. CBI utilities increased by 11.11 during year 8. I would suggest CBI have their utilities monitor from day to day to see how t hey bum prevent an increase in expenses when the accompany is not performing well compared to the previous year.ResearchCBI saw research and development saw a 37.5 % percent increase from year 6 to 7.During year eight CBI reduces their research and development expenses by 16.3 %. A company should never reduces their research and development if they company perform well in the previous year. I believe this was one of the reasons why CBI had a great year during 7 because they knew what consumers wanted. Due to privation of spending on research and development this caused their sales to drop. Research and development is an important component of competition against other companies without a company leave behind fail to succeed.Interest IncomeCBI divert income rose 38.1% from year 6 to 7. During year 7 CBI income was properly invested. During year 8 CBI investments had a 3.4% reduction. The reduction was small, but small functions do add up over time. I would suggest CBI to monito r their investments and make plans to move around their money if the accepted trend continues.Balances sheetsCBI accounts receivable rose 164.3% from year 6 to 7. During year 8 CBI accounts receivable drop 15 percent. CBI should monitor accounts receivable more closely to make sure past due balances are paid on time. This was caused due to the company noticing a large increase on accounts receivable during year 7 and they tried to capitalize on it. This caused their accounts receivable to drop.Raw MaterialsCBI manages their crude(a) substantials well during year 7. CBI had 3.1% percent reduction in year 8. CBI should incorporate cant production regularity and Just in time production to reduce wasteful spending and production.LiabilitiesCBI liabilities increase 1.2% from year 6 to 7. This is expected due to year having 7 having an increase in sales and productions. CBI reduces their liabilities by 3.1% from year 7 to 8. This is good because CBI had a 15 percent reduction in net sales.Vertical analysisA method of fiscal statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of vertical analysis are that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes within one business(Investopedia,2013).IncomeYear 7 net sales were 7% higher than year 6.CBI preserved their sell expenses at 6.7% of total Net Sales. CBI reduced General & Admin Expenses from 17.1% during year 6 to 15.5% during year 7.This would lead to an increase in Operating Income from 2.8% of Net Sales from year 6 to 5.3% in year 7 and CBI Net winnings would increase from 1.1% (year 6) to 3.3% (year7). CBI did not perform well in year 8 because their expenses increase during year 8. This caused CBI net assimilateings to reduce.. CBI Administrative expenses increased 15 .5% from year 6 to 7. CBI net sales increase 18.4% from year 7 to 8. CBI operating expenses income was reduce 5.3%of net sales to 1.9 % causing CBI net earnings from 3.3% to a .7%.I would urge CBI to monitor their general and Admin expenses. Majority of expenses stayed the same during year 6,7 and 8. However during year 8 the CBI did not perform well. I believed CBI need to find ship canal to reduces expenses when the company is having a low sales volume. CBI should incorporate just in time principles and lean manufacturing principles. I believe this would help reduce wasted production and this would help reduce utilities expenses. Just in time principles and lean manufacturing principles could also reduce employee expenses.ASSESTSCBI in the cash and cash equivalent accounts drop from 6.2 % in year 6 to 2.7%. However, during year 7 more products were sold compared to year 6. CBI accounts receivable had a major increase from year 6(6.5%) to year 7(16.6%).CBI needs to monitor their accounts receivable accounts more closely and make sure theyre collecting the amount owed to them. During year 8 CBI cash and cash equivalents had risen from 2.7 %( year 7) to 10.3%(year 8). The reason why this play was due to CBI had started to monitor their accounts receivable. This helped them collect the money they were owed on past due accounts. I would recommend CBI to avoid making purchase on accounts and find ways to use the cash in a more efficient way. CBI should realize it important they have enough reserves during a recession. This will help hold them over until the economy bounces back.Trend Analysis is the practice of collecting information and attempting to spot a pattern, or trend, in the information (Wikipedia,2012).CBI sales were lower than year 7, but they still were able to make a profit. CBI should expect to see growth in the next few years found on their current trend. CBI is expected to have 3,510 units sold in year 9. CBI will have 3,660 units sold in year 10. Finally during year 11,CBI will sell 3,800 units. The enter numbers are based on the economy recovering. This will encourages CBI sponsors to invest in professional riders and this will increase new bike sales. Currently is cost CBI 1,047.50 to make each product. I would recommend CBI find suppliers who have the same quality parts, but at a lower cost. I would also make recommend CBI is following just in time and lean manufacturing principles. This could help CBI increase their profit margin.Ratio analysis- analyzes numbersRatio analysis is a method used by businesses to assess their financial situation by comparing two sets of linked data. Current ratio will measure a companys ability to pay short-term obligations. CBI had a reduction from year 7 (5.9%) to 8(5.35%). Two wheel racing (TWR) current ratio was 4.2% for year 7 and 8. A debt ratio will determine if a business is able to handle any unexpected liabilities it that may come up. A business needs to make sure they enough money to pay off debt to avoid problems with their debt. During year 7 CBI debt ratio was 46.8%. The follow year the debt ratio was 46%. The debt ratio only drops .08 percent during year 8. TWR debt ratio was 38% in year 7 and 8. An acid test ratio will determine if a company can back their liabilities. CBI is doing better than (TWR) by 1.12% and .85%.Inventory turnover- determines the number of times a company can sell it average level of inventory passim the year. CBI bicycles are customizes for customers so I am unable to compared CBI and TWR. Average collection period, This determines how well a company is able to collect money to the customers they extended extension to.CBI has higher collected amount compared to TWR. CBI was 11.3% higher in year 7 and 8. Gross Profit Margin, will tell investors how much revnue was gain after selling the product(Cost of Good-revenue/gross profit. TWR profit margin is 32.10% higher than CBI profit margin in year 7(27.4%) and 8(27.0%). TWR is o perating more stiffly.Operating profit margin Measures management capacity (Operating income/total sales). CBI year 7 was 5.3% and TWR was 5.2%. Year 8 TWR performed better with 5.3% compared to CBI(1.9%). Net Profit Margin show investors the percentage of each sale dollar earn as net income. During year 7 CBI net profits was 3.3% and in year 8 it was .8%.TWR was 5.14% year 7 and 8. The portion of a companys profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a companys profitability(Investopedia,2013).TWR was $.08 for year 7 and 8. CBI was $.20 during year 7 and $.04 in year 8.Return on total assets-determine how successful a company is to earn profit with their assets. TWR total assets was 4.8% for year 7 and 8. CBI was 4.5% in year 7 and year 8 was .8%.Return on Common Equity- Income between net income and stockholder equity. During year 7 CBI equity was 8.5% AND TWR was 8.1%. CBI equity in year 8 was 1.5% and TWR was 8.1% Pr ice / Earnings Ratio- Stock prices and company earning. CBI earning share 49.67 and TWR was 29. During year CBI price jump to 83.73 and TWR was still 29. Times Interest Earned Determines the numbers of times operating income can pay interest expense. Year 7 interest earn was 5.27 and TWR was 4.24. During year 8 CBI interest earn drop to 1.77 and TWR remained 4.24. workings capital is a financial system of measurement(current assets minus company liabilities) which represents operating liquidity available to a business, organization or other entity, including governmental entity(Wikipedia,2013). The financial metric system will analyzes if a company will be able to pay their short term liabilities or do they need to take an pick solution. CBI working capital in year 6 was $382,394 CBI working capital at the end of year was 1,306,617. CBI increased their working capital by 70.7% at the end of year 8. After reviewing CBI working capital the results indicated they will be able to pay their short term liabilitiesRecommendationI would recommend CBI to have their accounts executives to build a better relationship with customers and make sure theyre satisfied with the work they are receiving. One of the most important things a company can do is listen to their employees. I would also recommend CBI to reduce their accounts receivables. This could be done by making sure that larger orders from customer are sent out faster. CBI inventory cost increase over 24% from year 6 to year 8.CBI should follow the just in time and lean manufacturing principles. This will reduces inventory cost for CBI. CBI transportation expenses are one of their highest expenses. I would recommend CBI to consider to purchasing their own deli very truck and see if this will help them reduce their transportation expense. inside controlsInternal controls helps a company infrastructure run smoothly. Internal controls also help protect and prevent fraud. Internal control will try to remove the tempta tions for employee to act unethically in the aspect of putting the company at fortune of lawsuit.CBI purchase plane section (PD) will purchases orders from suppliers based on their monthly budget. Once the order has been received the PD will evaluate bids from different suppliers. Once the order has been received theyre tending(p) to the production line. The invoice will be sent to the PD. If there are any supplies left they will be sent to raw materials. The PD will then send an accounting segment who issues a check to the supplier.RecommendationI would recommend the whole entire processed be revamped. The first thing I would recommended is to separate the duties of researching the bid and purchasing orders. The next thing I would suggest is to make the receiving department in charge of verifying the shipping when the packages arrive. The receiving department needs to verify every item is there from the supplier and their no missing item from the delivery. The receiving departm ent should maintain an inventory control system. After the receiving department has approved the invoice, they should forward to the purchasing department. The purchase order will be forward to the accounting department for payment. Accounting has currently been only receiving unverified invoices. attemptAccounting has currently been only receiving unverified invoices. The insufficiency of verification could cause CBI to get double charge for item they already paid for. Currently their lack of inventory control system. Currently unused supplies are being sent to raw material without anyway of tracking it. This would make it easy for employees to steal because lack of inventory control system.RecommendationI would suggest an inventory control system be implemented. I would make sure all packages received by receiving department be verified by management to avoid being double charge. The inventory control system will help prevent larceny from employees. I would also hire outside fir m every quarter to check inventory levels to make sure no one is stealing from the company.Sarbanes-Oxley telephone numberSarbanes-Oxley Act is government regulation that congress pass in order to improve financial disclosures. This would help prevent accounting fraud and improve financial disclosures from corporations(Wikpedia,2013).Section 302 A mandate that requires senior management to certify the accuracy of the reported financial statement Section 404 A requirement that management and auditors assemble internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls (Investopedia,2013).CBI does not mention that they were audited by outside firm. I highly recommend CBI to hire auditing firm to review the companys annual statement before releasing the numbers to the public to make sure there is no accounting errors. Inter nal controls are implemented and effective at the end of year 8(Dec 31). The CEO, and chief financial officer certification is need because it is required by SOX and this could not be located. Auditor releases the following statement to shareholders. A material weakness is a control deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely initiationRecommendationsCBI needs to make sure they are in compliance with the regulations set forth by Sarbanes-Oxley CB. The first thing I would recommend is to conduct a internal control assessment. The next thing I would recommend CBI to hire accounting firm to review their internal controls. The control needs to be based on Sox guidelines. The CEO and chief financial officer needs to certify theyre aware of the CBI internal cont rol and the actions the company have taken to protect investors investments. It is very vital CBI CEO and CFO certifies theyre aware of internal control because Sarbanes-Oxley requires this to be done.Since the accounting firm made assessment that the internal control is effective their might be some problems that could arise from the following statement, A material weakness is a control deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis. I would recommend the CEO or CFO to take action fix the internal control problem because they could face jail time for making statements that were not true. . CBI should base their guidelines set forth by the Committee of Sponsoring Organizations of the Tread Way Commission(CSOTWO). CSOTWO is joint inivate five private sect or organizations devoted to providing leadership through progress and guidance on enterprise risk management, internal control and fraud dictation. This is a great way for CBI to improve the internal control process.ReferencesFree Dictionary(2013) http//legal-dictionary.thefreedictionary.com/Sarbanes-Oxley+Act+of+2002 Investopedia(2013) http//www.investopedia.com/terms/h/horizontalanalysis.aspaxzz2Hh4rgfuE True Bussiness(2013) http//truetobusiness.com/ pay/ratio-analysis Wikipedia(2013) http//en.wikipedia.org/wiki/Internal_control