Competition Bikes, Inc. - Task 1



Competition Bikes, Inc. - Task 1

Introduction

This report focuses on the overall analysis of the Competition Bikes, Inc., including the assessment of operational strenghts and weaknesses of the company based on the horizontal, vertical, trend, and ratio analysis; analyses of company's working capital by considering the ways to improve it and means to use excess working capital for generating incraesing profits; evaluating internal controls for the purchasing system of the company by recommending corrective actions for any weaknesses and identifying risks and its mitigations; finally, an anlysis of compliance with Sarbanes-Oxley requirements while recommending corrective actions for non-compliant areas.

Strenghts And Weaknesses of Company's Operations

Horizontal Analysis

Horizontal analysis is performed by comparing the financial statement components, i.e. income statement or balance sheet components, of the company during a particular period of time. The assessment of dollar change facilitates a company to pay a close attention on the major factors that have affected the growth and profitability of the company during a particular time period (Kiesco, 2007). This type of analysis is a significant part of the business opeartion and activities of every company. Though a horizontal analysis is an effective measure for analyzing the financial position of a firm, yet it involves certain difficulties (McClure, 2012). According to research, the most common issue associated with horizontal analysis is that the agregation of finnacial information in company's disclosures may have altered over time baecuse of the continous changes in the account charts. Due to which the revenue, assets, expenses, or liabilities may shift among various accounts and thus seem to result in differences when comparing the account balances of one period with the next period.

Income Statement

The horizontal analysis of income statement of Competition Bikes, Inc. for the year 6, 7, and 8 represents that the the company's sales were incraesed from year 6 to year 7 by 33.3 percent, but then declined again in year 8 by 15 percent, consequently an unfavorable decline occurred in gross profit of 16.3 percent. As the sales incaresed from year 6 to year 7, the selling expenses also incraesed in result, and then due to decline in sales in year 8, selling expenses reduced by 14 percent in from year 7 to year 8. Moving further, the analysis of general and administration expenses indicates that the utilities expense raised by 11.1 percent as well as the other general and administration expenses raised by 7.6 percent from year 7 to year 8. This increase is confusing as the company produced and sold less products in year 8, considering which the utility expense as well as other general and administration expenses must not be incarese during the period. It suggests that the firm requires to analyse its opeartions to identify the reason behind this unreasonable increase, i.e. utilities and other general and administration expenses increased even when the sales have declined.

Further, the interest income from year 6 to year 7 escalated, but then declined in year ...