Competition Bikes, Inc. (CBI) Financial Analysis Report

In order to determine a company’s performance, analysis must be done for key metrics, including the ability to pay debts, how much cash or other liquid assets are available, and the company’s viability to continue operations. These analyses involve the review of income statements and balance sheets, where current and past performance will be studied with the goal of predicting how the company will perform in the future. Upper-level management at CBI can use this information to make decisions in line with the company’s goals.

This report for CBI will include four sections. First, I’ll analyze the company’s financial strengths and weaknesses by doing a horizontal analysis,
CBI’s net earnings rose a remarkable 313.4% between years 6 and 7, which is a reflection of the fact that profits grew at a much higher rate than expenses during that period. Net earnings declined by 81.6% between years 7 and 8, which is due to total revenues dropping to a greater extent than total expenses. This is a weakness for CBI as it is not sustainable for long before the company runs out of money. As mentioned previously in the operating income section, this is an issue that CBI’s management team must address if they want to stay in business.

Cash and cash equivalents declined 64.6% between year 6 and year 7. This is a weakness for CBI, particularly in light of the fact that sales were up during that period. The company should have more cash or cash equivalents on hand, not less. In years 7 and 8, cash and cash equivalents increased by 348.2% - this during a period where net sales were down by 15% compared to the previous period. While this appears on the surface to be a positive – as cash and cash equivalents help with the company’s liquidity – it can actually be interpreted as a weakness as CBI’s large amount of cash and cash equivalents may make some analysts question the company’s ability to manage their cash flow in a way that maximizes profits and