Jet2 Task 2 Financial Analysis Paper

Jason White
Financial Analysis
JET2 Task 1
February 18, 2015

For this task I preformed an analysis of the financials of Competition Bikes, Inc. In the following pages I will discuss my findings in detail. I will find weaknesses and strengths as well as indicators of how the company’s financial health is. Also included will be some potential ways to make adjustments to correct the weaknesses. Some of the operational strengths and weaknesses were identified by reviewing the horizontal, vertical, trend, and ratio analysis of the current and past financial situation. For the conclusion the strengths and weaknesses of the internal controls in place will be identified as well as solutions and some possible issues related to the Sarbanes-Oxley
With the decrease in sales profits will go down but perhaps ways to decrease the amount the Gross Profits should be considered. This number will cause some anxiety with investors and distributors of the goods which will have a lasting negative impact these numbers if signs of at least trying to fix the issues are not shown. A bit of a concern in a year with decreased sales and profits and increased debt is the increase in “other expenses.” This could be an indicator that management is not watching the budget and allowing spending to get out of control. If not watched and controlled these “other expenses” could continue to grow and take more money and cause a larger strain on the finances of the company. Part of the concern is also the difficulty to plan for an increase in non-essential spending and increasing by 4% is quite a jump. While the number of concerns noted in the horizontal analysis was many, there was some strength noted. The first is an indicator that management is willing to invest into the company though the sales had decreased. This indicator is the fact that research and development spending remained at 6% of the total gross profits. This helps give investors confidence and can help find the next innovation to increase
While not a huge number this is still a good thing and helps decrease debt. Part of that 1.9% decrease is a decrease in long term liabilities of 5.9%. While some of the short term debt may have been increased the long term that can slow down growth has been decreased. A bit of a mixed indicator is total assets increased 16.5%. While over all this appears to be a strength, the total cash on hand increased 348%. So on the surface this may be indicative of strength but when digging deeper the cash/asset ratio increased from 1.3 to 2.6 which is not necessarily a good thing. The company has enough money to pay its immediate bills but it shows that more can be invested in increasing sales or even paid out in dividends. The vertical analysis indicated similar strengths and weaknesses as the horizontal analysis. The weaknesses indicated are that the earnings before taxes decreased from 4.4% down to 0.9%. This is a significant drop and investors could definitely be concerned especially when combined with looking at the decreases in sales in profits from the horizontal