Task 3 Financial Analysis

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Financial Analysis Task 3 Task 3 A1. Recommend a capital structure. Capital structure is defined as " How a firm finances its overall operations and growth by using different sources of funds."(investopedia.com). In order for Competition Bikes Inc to expand to Canada, it has to choose the best method that will maximize shareholder return. In order to do this the company has to have a capital structure that is sufficient enough to be able to increase its cash flow, pay its debts, and have a return on its investments. This method has to also offer an option that will minimize the company's overall cost while providing addition dividends to investors at the least possible risk. To determine this we will use Earnings per share from the table…show more content…
In year 6, current assets were $1,029,303 and current liabilities were $105,080 resulting in $924,223 of working capital. In year 7, current assets were $1,353,044 and current liabilities were $233,700 resulting in $1,119,344 of working capital. In year 8, current assets were $1,575,831 and current liabilities were $ 300,200 resulting in $1,275,631 of working capital. The current ratio in year 7 was 5.79 and in year 8 was 5.25, compared to the industry standard of4.20. This upward trend for Competition Bikes continues from year 6 through year 8, giving the company ample cash on hand to meet their current liabilities. For every dollar they spend, they have over $5 on hand. This indicates that Competition Bikes is able to quickly turnover their short term debt and has less financial strain. However, a high amount of working capital may mean that management has not found a more beneficial way to utilize their cash on hand and is not making the most return on investment possible. Examining year 7 and year 8, higher accounts receivables is seen $717,600 for year 7 from $271,503 in year 6, and $609,960. This could indicate that Competition Bikes is having trouble getting customers to pay their invoices. Some ways to improve the accounts receivable, are to improve the process of collecting receivables. This starts with a detailed invoicing system that tracks what is owed to Competition Bikes. Know the customer by examining; do they have the ability or credit to pay and do they pay by check, credit card, or electronically. By examining these different customer aspects, it is possible to determine which process has a quicker turn around time and improves company receivables. Payment due prompts earlier in the payment cycle can remind customers to make on time payments, helping to decrease days in collections and receivables turn over. Tightening credit requirements,

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