Western Governors University
A1. This financial analysis is for Competition Bikes that was taken from balance sheets and income statements from years 6, 7 & 8. A1a. Horizontal Analysis
Net Sales – totaled $4,485,000.00 for year 6, and grew +33.3% or $1,495,000.00 between years 6 to 7. Cost of Goods Sold – totaled $3,294,000.00 for year 6, and from years 6 to 7 grew +32.8% or $1,048,000.00. Sales Commissions – totaled $134,550.00 for year 6, and from years 6 to 7 grew +33% or $44,850.00. Gross Profit – totaled $1,191,000.00 for year 6, and from years 6 to 7 grew +37.5% or $447,000.00. Strength is shown in these positive amounts from the income statement because they reflect positive growth. Year 6 to 7 (according to a Horizontal Analysis) is definitely the most profitable. Because the Sales Commissions and Cost of Goods sold were equal to or less than 34%, allowing for profit to take place and sending acceptable numbers of capital to employee compensations and investment. Spending on Advertising – totaled $23,820.00 for year 6, and from years 6 to 7 increased +37% or $8,940.00. Because sales grew with it, we consider that a strength. Distribution Network Support – totaled $44,850.00 for year 6, and from year 6 to 7 increased +33% or $14,950.00. Because business and the progress in the distribution network, this is a strength, and critical in moving product to the customer. Transportation Out – totaled $90,000.00 in year 6, and in year 6 to 7 grew +33% or $30,000.00. This reflects the condition of the economy and was demanded in the different areas of movement and delivery of merchandise to our clients. The price of gas also affected Transportation Out yet had nearly zero interference with sales gain. Utilities – total was $130,000.00 in year 6, and from year 6 to 7 grew 3.8% or $30,000.00. This is strength as the amount of business completed should have warranted a larger gain, and because it didn’t mean’s profit $$$. Research and Development (R&D) - totaled $71,460.00 in year 6, and in years 6 to 7 grew +37.5% or $26,820.00. Because of the need to remain competitive, this is definitely a positive as it allows us to have the competitive advantage over our competitors through innovation and development and client feedback. Weaknesses
As the company took on a major economic collapse during years 7 to 8, the income statement weakness is that the percentages dropped drastically. Net Sales – Totaled $5,090,000.00 in year 7, and in years 7 to 8 declined -15% or $897,000.00. Cost of Goods Sold – totaled $4,343,000.00 in year 7, and in years 7 to 8 declined -14.5% or $630,400.00. Sales Commission – totaled $179,400.00 in year 7, and in years 7 to 8 declined – 15% or $26,910.00. Gross Profit – totaled $1,638,000.00 in year 7, and in years 7 to 8 declined -16.3% or $226,600. Bike sponsorship was taken away in year 7 to 8 due to the weakness in Net Sales and Gross Profit and was a true reflection of the lethargic economy. Cost of goods sold diminished, and s The savings in expense was unable to increase profit. Because Competition Bikes was profitable, ceasing to input money into commissions was the right thing to do. However, had Competition Bikes been profitable, failing to pay excess money into commissions was a good thing because there were no sales to report! Expenses for years 7 to 8 were dreadful:
Expenses – totaled $32,760.00 in year 7, and in years 7 to 8 there was a decrease of -16.3% or $5,332.00. Because advertising was reduced, we were unable to reach a broader customer base of potential clients. That makes this a definite weakness. Distribution Network – totaled $59,800.00 in year 7, and in years 7 to 8 decreased -15% or $8,970.00. Movement of parts and merchandise were unnecessary as the company failed to achieve gains in sales...