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Financial Analysis Jet Task 2

In: Business and Management

Submitted By stevenkurker
Words 10434
Pages 42
Requirements for Task 1:

A Prepare a summary report in which you do the following:

1) Evaluate the company’s operational strengths and weaknesses based on the following:

a) Review the horizontal analysis, analyze the results, and discuss operational areas of concern.

“Horizontal analysis of financial statements involves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. This method of analysis is also known as trend analysis. Horizontal analysis allows the assessment of relative changes in different items over time. It also indicates the behavior of revenues, expenses, and other line items of financial statements over the course of time.” (Ready Ratios, 2014a)

The sections below summarize the results of my horizontal analysis of Competition Bikes, Inc. (CB):

Year 7 to Year 8

CB suffered a decrease in Net Sales Revenue of 15% from Year 7 to Year 8, but the course materials explained this as a result of a decline in the overall economy. This is a reasonable explanation and may very well indicate that CB management’s actions or inactions are not to blame for decline.

It is encouraging that percentage decreases in Cost of Goods Sold and Selling Expenses, 14.5% and 14.9%, respectively, approximated the 15% decrease in Net Sales indicating no significant change in marginal cost of production and sales.

That total General and Administrative Expenses increased by 1.2% is not any cause for concern since, according to the information contained in the course materials, CB management forecasted increases to Net Sales Revenue moving forward. That is to say, there was no prudent rationale for reducing employee salaries or the number of employees in the face of what management considered a temporary decline due to general economic conditions. I would recommend, however, that CB...

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