Competition Bike Operational Strengths
Competition Bike Operational Strengths and Weaknesses based on Horizontal Analysis
It is important to have a working definition of the term horizontal analysis. The free dictionary defines horizontal analysis as “the process of dividing each expense item of a given year by the same expense item in the base year. It allows assessment of changes in the relative importance of expense items over time and the behavior of expense items as sales change”.
The company had an outstanding performance in 2007. In year 7, net sales increase by over 33.3% at $1,495,000 with a corresponding increase in gross profit of 37.5%. This meant the Competition Bikes pricing strategy was well executed. They were able to add enough mark-up value to the price of the bikes that was sold during the financial period. Cost of Sold also increased this is a direct result of the increase in net sales. What is important to determine is whether the sales were from bikes in stock or newly made bikes. In years 8 there was a 15% decrease in net sales with a loss of $897,000 from year 7. Gross profit had a 16.3% decrease, at a loss of $266,600 as well in year 8. This is due to the current economic conditions that have had an impact on the sponsor’s ability to fund riders as they usually do. The cut back on funding is expected to continue for the next three years.
The operating overheads of the company mainly advertisement and market research both increased by 37.5%. In orders to gain a competitive edge over its main competitor, Competition Bike has to focus more heavily in advertisement as in the past their efforts were limited, most of the advertisement were done by satisfied customer spreading their satisfaction with the product by word of mouth. Continuous research and development has to be maintained in order to meet customer’s unique demands.
Total operating expense increased by 23.9% which includes executive compensation. This shows that the company is motivating employees to make strategic
It is important to have a working definition of the term horizontal analysis. The free dictionary defines horizontal analysis as “the process of dividing each expense item of a given year by the same expense item in the base year. It allows assessment of changes in the relative importance of expense items over time and the behavior of expense items as sales change”.
The company had an outstanding performance in 2007. In year 7, net sales increase by over 33.3% at $1,495,000 with a corresponding increase in gross profit of 37.5%. This meant the Competition Bikes pricing strategy was well executed. They were able to add enough mark-up value to the price of the bikes that was sold during the financial period. Cost of Sold also increased this is a direct result of the increase in net sales. What is important to determine is whether the sales were from bikes in stock or newly made bikes. In years 8 there was a 15% decrease in net sales with a loss of $897,000 from year 7. Gross profit had a 16.3% decrease, at a loss of $266,600 as well in year 8. This is due to the current economic conditions that have had an impact on the sponsor’s ability to fund riders as they usually do. The cut back on funding is expected to continue for the next three years.
The operating overheads of the company mainly advertisement and market research both increased by 37.5%. In orders to gain a competitive edge over its main competitor, Competition Bike has to focus more heavily in advertisement as in the past their efforts were limited, most of the advertisement were done by satisfied customer spreading their satisfaction with the product by word of mouth. Continuous research and development has to be maintained in order to meet customer’s unique demands.
Total operating expense increased by 23.9% which includes executive compensation. This shows that the company is motivating employees to make strategic
References: Accounting for Stock Transactions. (n.d). Retrieved on December 28, 2012 from http://www.cliffsnotes.com/study_guide/Accounting-for-Stock-Transactions.topicArticleId-21248,articleId-21193.html Deciphering the Meaning of a Financial Statement. (n.d). Retrieved on December 20, 2012 from http://www.brighthub.com/office/finance/articles/109336.aspx# Horngren, C. (2009). Accounting. (8th ed.).Prentice Hall Inc Horizontal Analysis Internal Control Practices. (2009). Retrieved on January 7, 2013 from http://blink.ucsd.edu/finance/accountability/controls/practices/purchasing.html Internal Control and Risk Management. (n.d). retrieved on January 11, 2012 from http://www.kpmg.com/CN/en/services/Audit-Committee-Institute-China/Documents/development/Internal-control-guide-200506.pdf Management assessment of Internal control. (n.d). Retrieved on January 08, 2013 from http://www.sarbanes-oxley-101.com/SOX-404.htm Peavler, R. (n.d). Profitability Ratio Analysis. Retrieved January 6, 2013 from http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm Quick Ratio. (n.d). Investopedia Online. Retrieved on December 31, 2012 from http://www.investopedia.com/terms/q/quickratio.asp#axzz2HoO3TBJf Vertical Analysis