girl
slogan
arrow
add phones phones
nav_arrow
Essay Editing
Essay Tips
Essay Writing Samples
Ideas for Essays
Plagiarism Free Essays
Writing Essays
Over 300 words/page
galka Double-spaced
galka Text aligned left
galka One-inch margins
galka 12 point font size
galka You choose font face
bottom
chat
Reasons why to choose us
  • US registered company
  • Over 1500 certified writers
  • Any topic at any academic level
  • Up to date sources
  • Life time discounts
  • 100 000 prewritten essays & Plagiarism report as FREE Extras
  • Personal account
  • Direct communication with the writer
  • 24/7 Customer support
  • Delivery from 6 hours
accept people
medal14
← Analytical Framework for Star IndustriesBook Analysis Guidelines →
Live Chat

Strategic and Financial Analytical Tools

Buy custom Strategic and Financial Analytical Tools essay

It is found that people are still unaware how investment can be done in a company. Low knowledge regarding the company always increases the threats association with the investment. To analyze the financial health of an organization, analysts both internal and external apply different analytical tools merely for the investment purpose.

There are number of tools available to analyze the business and financial condition of an organization. Strategic and financial analytical tools work wonderfully for the long-term economic prosperity of an organization. To run the business, there are two things which the organizations have to keep in mind. One is to attract investors while the other is cost efficiency. After the current economic downturn, all the companies are now moving towards cost effectiveness. The main perspective of this assignment is to analyze the business and financial performance of a chosen company. The company which has been chosen for this assignment is Competition Bikes.

Financial analysis is used to measure the financial health and stability of an organization. Organizations and specially the brokerage firms hire financial analyst on hefty compensation because they are the only professionals who can visualize the company from a financial aspect and provide the remedies accordingly. There are a lot of contradictions found in the analysis of a firm from a business aspect and from an investor stand point.

Company Profile Competition Bikes Inc

Where motorcycle observed trials and vintage motorcycles are the passion.  

the company are factory authorized and supported dealers for Beta, Gas Gas, & Sherco Trials bikes and carry an extensive inventory of parts and accessories to support these and other brands.

Competition Bikes Inc can now make throttle, brake, and clutch cables for all vintage bikes!

Remember the smells of vintage bikes back in the 'day? We now sell Blendzall racing castor oils!

The company has a fully equipped service department and factory trained mechanic to handle all of your service needs.

Net Profit Margin (NPM) Analysis

Net means anything from which all the expenses and other cost would have been deducted. NPM is an important measure to analyze and compare the financial performance of different companies. Profit margin is very effective when comparing companies in analogous industries. An advanced profit margin shows more profitable ratios that has better monitor over its costs compared to its competitors. High NPM is an indication that the company is performing well as far as generating net income is concerned. For instance, if a company has a NPM of 40% it means the company is able to generate 40$ from its 100$ of sales. NPM table along with the chart is mentioned below,

Year

Sales

Net Income

NPM

 

in million $

in million $

%

 

 

 

 

2001

                     44,220

                       2,460

5.563

2002

                     42,550

                       1,860

4.371

2003

                     41,870

                       1,840

4.395

2004

                     41,640

                       1,230

2.954

2005

                     48,470

                       1,010

2.084

2006

                     58,290

                       1,010

1.733

2007

                     72,380

                       1,710

2.363

2008

                     71,890

                       2,290

3.185

2009

                     58,100

                       2,530

4.355

2010

                     60,170

                       2,510

4.172

Average

                     53,958

                       1,845

        3.517

Industry Average

 

3.21

The major source of revenue for the Competition Bikes is the mobile selling income. The company channels most of its efforts into serving as many customers as possible from a certain area of residence. It locates its stores locally to ensure they are the most convenient stores in the location. As discussed earlier, NPM is a strong indicator to evaluate the financial performance of an organization. The trend of NPM of Competition Bikes Company is tremendous and fluctuating as well at the same time. The company envisaged a slow momentum time after enjoyed a pool of wonderful years. The NPM of the company was 5.563% in the year 2001 which decreased for four consecutive years by 24.39%, 1.07%, 33.15% and 17.88% for years (FYs) 2002, 2003, 2004 and 2005 respectively.

According to Management Analysis & Discussion section of the annual reports of given years, the downfall in the Net Income of the company was due to the expansionary phase. It was the time when there was immense competition in the entire global market. Competition Bikes spent billions of dollars each year on Research & Development (R&D) to capture that golden period of expansion. After 2005, good time of Competition Bikes had started as the company’s NPM increased rocketry by 69.30 in the year 2007 as compared to the same period of last year. Competition Bikes is one of those companies that performed excellently even at the time of economic hardship. In that period, lots of companies missed out their revenue targets but the NPM of Competition Bikes increased consistently for three years thereafter by 33.91%, 10.48% and 0.79% FYs 2008, 2009 and 2010. The average NPM of Competition Bikes is 3.517% which shows that the company is able to generate 3.5$ from its sales of 100$ which is indeed not very high but is the satisfactory node as compare to the industry average of 3.21%. Let’s now move towards the second ratio in Profitability section which is Gross Profit Margin (GPM).

Gross Profit Margin (GPM)

Likewise, NPM, Gross Profit Margin (GPM) is another wonderful ratio to analyze the financial performance of an organization. Net means sales minus every bit of expense while gross profit is equal to sales minus cost of good sold. Likewise NPM, higher GPM would be desirable from the standpoint of a company. The computed table along with the graph is mentioned below, 

Year

Sales

Gross Profit

GPM

 

in million $

In million $

%

 

 

 

 

2001

                     44,220

                     14,587

32.987

2002

                     42,550

                     12,664

29.763

2003

                     41,870

                     10,454

24.968

2004

                     41,640

                     10,014

24.049

2005

                     48,470

                       9,568

19.740

2006

                     58,290

                     13,379

22.952

2007

                     72,380

                     17,277

23.870

2008

                     71,890

                     17,373

24.166

2009

                     58,100

                     13,264

22.830

2010

                     60,170

                     12,817

21.301

Average

                     53,958

                     13,140

      24.663

Industry Average

 

21.66

GPM is one of the strongest measures to assess the financial capability of an organization. It apprises the investor how much the company has spent in generating the financial numbers. High GPM is a clear indication that the company is incurring a low cost while generating economic profit and vice versa.

The GPM of Competition Bikes faced a similar trend like the NPM as the GPM of the company decreased consecutively for four years by considerably proportions of 13.18%, 17.45%, and 4.20% and 4.45% FOY 2002 to 2005 respectively. The reason of that downturn was the same as of NPM. Sales Revenue of the company also decreased in that period by 3.77%, 1.59% and 0.54% respectively while the GPM of Competition Bikes decreased by 322, 479, 91 and 430 basis points.

After that period, the GPM of Competition Bikes started to cripple out. In the year 2006, the Gross Profit of Competition Bikes increased considerably by 39.83% as compared to the same period of last year because of the increment in total sales by 20.25% in the same year. Gross profit of Competition Bikes was almost Zero in the year 2008 and then decreased by 23.65% in the wake up fiscal year 2009. It was current economic downturn which increased the stance of cost incurring and decreased the gross profit and gross margin of the company with heavy proportions. The average GPM of Competition Bikes is 24.66% which shows that the company is able to generate 24.66$ from net sales of 100$ which is way above from the industry average GPM of 21.66%.

Balance Sheet Analysis

The Balance Sheet presents the financial position of a company at a point in time. The Information in a balance sheet allows the financial analyst to better assess a company’s ability to meet debt obligations, generate future cash flows, and make distributions to owners. However, the balance sheet has limitations, especially as it relates to the measurement of assets and liability. The analyst must understand the measurement of assets and liabilities and the structure of the balance sheet in order to accurately assess the financial position of a company.

The first ratio which has been used here is Return on Asset (ROA).

Return on Asset (ROA) is a combination of Net Income and Net Assets of the company. The computed result along with the graph is mentioned below,

Year

Total Assets

Net Income

ROA

 

in million $

in million $

%

 

 

 

 

2001

                     16,252

                       2,460

15.137

2002

                     16,547

                       1,860

11.241

2003

                     18,798

                       1,840

9.788

2004

                     19,876

                       1,230

6.188

2005

                     24,157

                       1,010

4.181

2006

                     22,617

                       1,010

4.466

2007

                     37,599

                       1,710

4.548

2008

                     39,582

                       2,290

5.785

2009

                     35,738

                       2,530

7.079

2010

                     39,123

                       2,510

6.416

Average

                     27,029

                       1,845

        7.483

Industry Average

 

6.25

Assets are used heavily in the operational activities of an organization. The movement of assets of the company is considerable throughout the analytical period. The movement in the ROA of Competition Bikes is almost identical to that of NPM and GPM as it decreased consistently for four years and then gradually increased its momentum. The ROA of Competition Bikes decreased by 24.39%, 1.07%, 33.15% and 17.88% in the years 2002, 2003, 2004 and 2005 respectively.

It was the time of economic expansion, so the company sold out its obsolete assets trying to add new ones in its operations. In the year 2007, the ROA of the company increased by almost 70% which is indeed a big difference as compared to the same period of last year manifesting that the expansionary period of the company get successful. After that year, the ROA of the company increased for three consecutive years by 33.91%, 10.48% and 0.79% FY 2008, 2009 and 2010 respectively.  Mean ROA of Competition Bikes, according to computation, is 7.48% which shows that the contribution of operational asset in generating 100$ of sales is 7.48$ which is good enough for a telecommunication company. Mean ROA of the company is higher than that of industry average ROA of 6.25%. Now a jump is required towards another important measure of the balance sheet which is Return on Equity.

Return on Equity (ROE)

ROE can be measured by dividing the net income of the company by total Shareholder’s Equity. The computed result and the graph of the same is mentioned below,

Year

Total Equity

Net Income

ROE

 

in million $

in million $

%

 

 

 

 

2001

                       9,002

                       2,460

27.327

2002

                       9,965

                       1,860

18.665

2003

                       9,896

                       1,840

18.593

2004

                     10,244

                       1,230

12.007

2005

                     11,012

                       1,010

9.172

2006

                     11,968

                       1,010

8.439

2007

                     14,773

                       1,710

11.575

2008

                     14,208

                       2,290

16.118

2009

                     13,088

                       2,530

19.331

2010

                     14,384

                       2,510

17.450

Average

                     11,854

                       1,845

      15.868

Industry Average

 

13.21

This particular measure actually computes how much the company has earned on the amount of investment it rendered. Investors always prefer to invest in those companies which have higher ROE. Higher ROE is desirable to achieve for a corporation as it apprises that the company has strong worth and has the ability to generate funds and economic profit by utilizing the shareholder’s income in a plausible manner.

The movement in ROE is somewhat identical than that of ROA. ROE of Competition Bikes was 27.7% in the year 2001 which decreased each year by small and heavy margins for 4 consecutive years by 0.07%, 6.58%, 2.83% and 0.73% FYs 2002 to 2006 respectively. It is interesting that the total equity of the company was actually increasing in that period but the return associated with the equity was decreasing. It is a clear sign of investment mismanagement occurrence in the company. One thing is also possible in that scenario, which is economic expansion. There is a possibility that the company was not investing the shareholder’s equity for the insatiability of return and invests the money for future economic expansion. After the year 2006, marginal difference in ROE of the company can be envisaged easily with the help of graph and above mentioned computation table. The ROE of Competition Bikes increased by 3.13%, 4.54%, and 3.21% in the year 2007, 2008 and 2009 which is showing that finally the investment mismanagement comes at the right place. Average ROE of Competition Bikes is 15.86% which is good for a telecommunication company which shows that the company is actually generating approx 16$ from the shareholder’s equity amounting to 100$. The result is above from the industry average ROE which is 13.21%. Now a jump is required towards liquidity ratio computation.

Liquidity Ratio Computation

The word Liquidity has numerous meanings under its umbrella. In finance, liquidity means anything which can be converted into cash easily and at any time. Liquidity is an extremely important stance in finance. The securities which have embedded option of liquidity are more attractive than that of those securities which don’t have this provision. There are different ratios under the ambit of liquidity ratios. Liquidity ratios effort to appraise a business's ability to pay off its petite-designate debt obligations. This is done by comparing a band's most liquid assets (or, those that can be simply converted to money), its brusque-name liabilities. In general, the better the coverage of liquid assets to fleeting-designate liabilities the better it is, as it is an obvious hint that a troupe can pay its debts that are upcoming due in the near outlook and still support its ongoing operations. On the other hand, a cast with a low coverage quotient should advance a red mark for investors as it may be a poster that the visitors will have difficulty summit running its operations, as well as meeting its obligations.

Analyst separates short term ratios and long term ratios in order to assess the stance of meeting with them. The first ratio which will be used here is Current Ratio.

The computed table and graph of current ratio is mentioned below.

Year

Current Assets

Current Liabilities

CR

 

in million $

in million $

%

 

 

 

 

2001

                     31,790

                          14,490

2.194

2002

                     33,070

                          12,820

2.580

2003

                     33,910

                          12,440

2.726

2004

                     32,140

                          11,960

2.687

2005

                     31,830

                          14,380

2.213

2006

                     53,000

                          15,100

3.510

2007

                     56,110

                          32,360

1.734

2008

                     50,660

                          35,970

1.408

2009

                     52,060

                          32,110

1.621

2010

                     55,460

                          35,070

1.581

Average

                     43,003

                          21,670

                        2.226

Industry Average

 

1

Current Ratio is an indication that the organization has the ability to tackle its short-term obligations. Due to the CR, an analyst get an idea that the organization has the tame to meet with it short-term financial promises. Current means the financial promises which have a life of one or less than 1 year.

From the above mentioned table and graph, it is very clear that Competition Bikes is among those companies which meet with their short-term financial promises pertinently. Throughout the analytical period, the CR of the company remained above the psychological level of 1 which is showing that the company is proactive towards meeting its short-term financial promises. The CR of Competition Bikes was way above the psychological level of 1 in the fiscal year 2001 which increased for two consecutive years by 38 and 15 basis points FY 2002 and 2003 respectively because of the augmentation in the current asset’s figures by 4.02% and 2.54% respectively.

High fluctuation among the figures of CR, Current Assets and Current Liabilities have been envisaged throughout the selected analytical period. All of these three things came in positive and negative after every single or pair of years. The CR of the company remained in the congestion band from 1:5 to 2:8 except for one year in which the CR of the company touched the record level of 3:5 because of the increment in total current assets of the company by 66.50% in the fiscal year 2006. 

The average CR of Competition Bikes is 2:26 which is way above the psychological level of 1 which is showing that the company always meets its short-term obligation plausibly. This provision can be extremely momentous from the standpoint of the company and its shareholders. It’s time to move towards to second liquidity ratio which is quick ratio.

Long term Debt to Equity

The computed result and the graph of the same is mentioned below,

Year

Total Equity

Long term Debt

LTD/E

 

in million $

in million $

%

 

 

 

 

2001

                           9,002

                               321

3.566

2002

                           9,965

                               454

4.556

2003

                           9,896

                               365

3.688

2004

                         10,244

                               102

0.996

2005

                         11,012

                                 78

0.708

2006

                         11,968

                                 69

0.577

2007

                         14,773

                               203

1.374

2008

                         14,208

                               861

6.060

2009

                         13,088

                            4,432

33.863

2010

                         14,384

                            4,242

29.491

Average

                         11,854

                            1,113

                        8.488

Industry Average

 

7.9

Long term Debt computation is extremely important from the standpoint of an organization. Long Term Debt to Equity Ratio of the company was in a good node in the year 2001 and showing a figure of 3.56% which increased 99 basis points in the year 2002 due to the increase in long-term debt of Competition Bikes by 41.4%. This particular ratio has to be on a lower side for the long run economic growth of an organization.

Debt to Equity

Mentioned below table and graph will reveal rest of the story regarding the association of debt and equity in the company’s capital structure.

Buy custom Strategic and Financial Analytical Tools essay

Buy essayHesitating

Related essays

  1. Book Analysis Guidelines
  2. Whole Genome Duplication
  3. Analytical Framework for Star Industries
  4. Research Study
get online helpBuy Essay
Email:
Password:
details
Time left: 4 days 19:44:26
arrow Essay in 11+ days for $12.99/page
arrow Essay in 7-10 days for $13.99/page
arrow Essay in 4-6 days for $14.99/page
arrow Essay in 3 days for $15.99/page
arrow Essay in 48 hrs for $17.99/page
arrow Essay in 24 hrs for $21.99/page
arrow Essay in 12 hrs for $26.99/page
arrow Essay in 6 hrs for $32.99/page
  more »  

"The paper you wrote for me really pays off... I do not have to rewrite it or hire another service to edit it. It is absolutely perfect"

more »  
Rekindling the Platonic Years Through Plato Essays
Writing Evaluation Essay
Writing a Nice French Essay
Writing a Narrative Essay
Putting up a Good Academic Essay
Writing an Algebra Essay
Writing a Good College Entrance Essay
Writing a Dental School Essay