The financial analysis of a business organization involves the complete assessment of the liquidity, profitability, competitiveness and stability of the business. The process is done through using the financial statements of the business. The financial reports are generally presented to top management for purposes of decision making and setting up goals. Analyzing Competition Bikes Inc.’s financial status requires evaluating its internal operations reflecting the horizontal, vertical, ratio, and trend analysis, as well as its working capital. These reviews provide profit margins allowing for projecting any necessary budget restraints in overhead costs and sales potential. Yearly production performance comparisons, based on overhead versus profit, enable a budget projection for ordering production materials on a month-to-month basis. (Shim, J. and Siegel, J. 2009). Horizontal Analysis
The horizontal analysis is the study of percentage changes of comparative statements in the case of Competition Bikes Inc.’s years six and seven, and seven and eight. Using the horizontal analysis chart, Competition Bikes Inc., shows the accounts payable, between years six and seven increased as it did between years seven and eight. According to the horizontal analysis, Competition Bike Inc.’s net sales between year six and seven increased 33.3 percent at $1,495,000. Net sales of the CarbonLite product, between years seven and eight, decreased 15.0 percent with a loss of $897,000 over the previous year. Gross profits between years six and seven show a 37.5 percent increase at $447,000, and for years seven and eight a 16.3 percent decrease, at a loss of $266,600 (Shim, J. and Siegel, J. 2009). The operating cycle represents the period of time involved in purchasing raw materials, manufacturing the goods and distributing them. The cash conversion cycle is the net time period between the collection of cash receipts from sales and the cash payments for the different materials used by the firm. The operating cycle for Competition bikes has decreased from 50.52 to 48.00 in the years 2006, and 2007, respectively. This is a clear indication of growth in sales that is higher than the growth rate of inventory (a positive sign). The cash conversion cycle is negative in the three years, which indicates the high liquidity of the business, since it enjoys a short receivable period and a long payable deferral period. This shows that the company is efficiently managing its resources. The total general and administrative expenses for years six and seven on the horizontal chart shows an increase of 20.4 percent at $156,440. These expenses for year seven and eight increased 1.2 percent at $11,004.
| Change in sales
| Percentage change (%)
Years six through seven
Years seven through eight
The operating income for year six and seven increased 154.6 percent at $191,820, and for year seven and eight the operating income shows a 61.9 percent decrease with $218,392. The net income between year six and seven increased 313.4 percent at $198,420. The net income for year seven and eight declined 81.6 percent with a decrease of $160,194, over the previous year. The company’s performance indicates better profits between years six and seven, with a decrease between years seven and eight. The cash account between years six and seven shows a decrease of 54.6 percent, with a loss of $142,451. The horizontal analysis of years seven and eight shows an increase of the cash account of 275.4 percent, with an increase in cash at $326,475. Total liabilities between year six and seven increased 1.2 percent, with a total of $128,620. The total liabilities for years seven and eight, according to the horizontal analysis, show a decrease at 1.9 percent with $38,500. (Brigham, E. and Houston, J. 2007). The stockholder equity for Competition Bikes Inc. between years six and seven increased 2.9 percent, showing $119,914....
References: Committee of Sponsoring Organizations of the Tread way Commission (COSO). (2009) Retrieved on 07/04/ 11 from
Brigham, E. and Houston, J. (2007). Fundamentals of financial management: Horizontal analysis.
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Investopedia.com. (2011). Horizontal analysis. Retrieved March 8, 2011 from
Kieso, D. and Weygand, J. (2007). Intermediate Accounting. Hoboken, New Jersey: John Wiley and Sons.
Shim, J. and Siegel, J. (2009). Schaum 's Outline of Financial Management. London. McGraw-Hill Professional.
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