JET 2 Task 1

Good Essays
A1.
a. Horizontal Analysis INCOME STATEMENT Years 6 and 7

REVENUE
Net sales for Competition Bikes, Inc. increased 33% from year 6 to year 7. This yielded a 31.8% increase in costs of goods sold. Gross profit in year 7 was up by 37.5%. This is done by subtracting the cost of goods sold (3,294,000) from net sales (4,485,000) and resulting in the 37.5%. Their overall net earnings increased 313.4% in the course of year 6 to year 7. That is roughly three times their previous earnings. This growth could be attributed to the increased amount of money spent on research and devolvement and on various advertisements. (WGU, 2014)
SELLING EXPENSES
Due to variable expenses, expenses that increase as production and sales increase, selling expenses for Competition Bikes, Inc. increased. From year 6 to year 7, total selling expenses increased by 33%. General and Admin expenses also increased, by a lesser amount, at 31.1%. Due to a sufficient increase in net sales, the added selling expenses did not come at a deficit to the bike company. Advertising expenses also increased to 37.5% but due to website creation and various maintenance costs staying relatively the same, it did helped balance the expenses and net sales and negative impacts on the company were not made. (WGU, 2014)
GENERAL AND ADMIN EXEPENSES
Between year 6 and year 7, general and admin expenses increased by 20.4%. Expenses that fall within this category are defined as fixed costs. These are known as expenses that are not directly related to production and sales of a company. Although general and admin expenses grew by 20.4%, it did not negatively impact Competition Bikes, Inc. because gross profits increased by 37.5%. Both utilities and research and development are the two root causes for the increase in this category. Utilities increased slightly at 3.8% while research and development came in at a stammering 37.4% increase. (WGU, 2014)
OPERATING INCOME
Operating income was a positive



References: Acid-test ratio. (n.d.). Retrieved February 18, 2015, from http://www.investorwords.com/78/acid_test_ratio.html Average collection period Debt ratio. (n.d.). Retrieved February 18, 2015, from http://www.investorwords.com/1326/debt_ratio.html Earnings per Share Four Types of Risk Mitigation and BCM Governance, Risk and Compliance (GRC) - MHA Consulting. (2013, May 17). Retrieved February 18, 2015, from http://www.mha-it.com/2013/05/four-types-of-risk-mitigation/ Gross profit margin Internal Controls Definition | Investopedia. (2006, September 18). Retrieved February 18, 2015, from http://www.investopedia.com/terms/i/internalcontrols.asp Inventory turnover Net profit margin. (n.d.). Retrieved February 18, 2015, from http://www.investorwords.com/3260/net_profit_margin.html Operating profit margin Optimize your working capital to improve cash flow and profits. (n.d.). Retrieved February 18, 2015, from http://www.ashkhadank.com/article/optimize-your-working-capital-to-improve-cash-flow-and-profitprofits.html Price/earnings ratio Return on common equity. (n.d.). Retrieved February 18, 2015, from http://www.investorwords.com/6646/return_on_common_equity.html Return on Total Assets Sarbanes-Oxley Act Section 404. Sarbanes Oxley 404 Made Easier. (n.d.). Retrieved February 19, 2015, from http://www.soxlaw.com/s404.htm Ten Ways to Reduce Inventory, While Maintaining or Improving Service The Disadvantages of Holding Too Much Inventory on Hand. (n.d.). Retrieved February 18, 2015, from http://smallbusiness.chron.com/disadvantages-holding-much-inventory-hand-22710.html Times interest earned Western Governors University. (2014) Competition Bikes Inc. Financial Data [PDF]. Western Governors University WHAT ARE INTERNAL CONTROLS? (n.d.). Retrieved February 19, 2015, from http://www.marquette.edu/riskunit/internalaudit/internal_controls.shtml Working Capital

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