Financial Analysis

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Michael White

Financial Analysis task 1

Summary Report

Horizontal Analysis - The financial statements of Competition Bikes indicates a reverse in sales between fiscal years 6 and 7 where revenues increased to 37.5% and then a decreased 16.3% between fiscal years 7 and 8. This apparent trend is an indication that the company is moving in the wrong direction as sales have decreased. Not only is sales decreasing because of the current economic situation, but customers who also sponsor professional riders are decreasing. Reduction of sponsors will decrease advertising resulting in reduced sales. The trend in sales will have ramifications through out the entire organization as is demonstrated in further review. Another problem associated with costs as it relates to sales is that distributors gain a 50% sales discount. This is beneficial for the distributors, but in poor economic times this costs competition bikes more due to the high level of fixed costs. It can be noted that expenditures have decreased by 3.6%. In the short term, sales are dropping faster than the expenditures, which must be corrected if the company is to remain profitable. The company appears to have a substantial amount of fixed costs. With sales decreasing losses will soon increase at a faster rate leading to a company that is no longer profitable. The advertising budget has not been increased, which can be a direct nexus to the low sales. The decrease in commissions is directly related to the low sales. An increase in the advertising budget should increase potential sales, which would also increase the commissions being provided. Through the fiscal years 7 and 8, salaries and benefits have remained constant, while the company has continued to have a decrease in sales. In order for a company to be viable, expenditures need to be decreased or revenues will need to be increased. If sales continue to decline then the potential for layoffs will need to be considered for the...
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