Task 1 Essay

4982 Words20 Pages
Financial Analysis Task 1 Financial Analysis Task 1 Competition Bikes, Inc. is a company that makes bicycles for professional riders who compete in bike races, biathlons, and triathlons. They have had an extraordinary success rate among competitive bike riders due to effective sales promotions and word of mouth advertising. In order to evaluate the company’s operational strengths and weaknesses we must evaluate the company’s financial status using horizontal analysis, vertical analysis, trend analysis and ratio analysis. We will analyze the working capital as we consider ways to improve the working capital and ways to use excess working capital to generate an increase in profits. When the internal controls for the purchasing system are evaluated we can recommend corrective actions for any weaknesses, identify risks to the company. Also, we will analyze compliance with Sarbanes-Oxley requirements and recommend corrective action for noncompliant areas. A1a. Horizontal Analysis A horizontal analysis is done by comparing the company’s financial data, over several years, side by side in order to see any changes from year to year. When changes are considered from one year to another it is better to evaluate the changes if the numbers are calculated in percentages instead of dollar amounts. When computing a percentage change you must divide the dollar amount of change by the base year amount. Therefore, when using the horizontal analysis to evaluate the operational strengths and weaknesses we first observe the net increase between years 6 and 7 is 33.3%, which means that revenues increased for this period of time. The gross profit increased by 37.5%, operating income increased by 154.6% and net earnings increased by 313.4%. These increases are strengths for the company because they all increase profitability or revenue for this time

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