Horizontal analysis is one of the two main ways to analysis the financial statements of a business. This analysis provides a year to year look at the financial performance of the business being evaluated. The spreadsheet that is attached provides a horizontal analysis of years 6, 7,and 8 for the balance sheet and income statement for Competitive Bikes and Two Wheel Racing.The horizontal analysis can take into account either the dollar amount of the changes over theyears or the percentage of change for the years. This analysis will consider both items, and willalso be comparing years 6 and 7 and 7 and 8.
Year 7
The analysis of years 6 and 7 shows a positive result for Competitive Bikes.RevenueThere was a positive increase in revenue for years 6 and 7. Net sales increased by $1,495,000 between years 6 and 7. This was a 33.3% increase for Competition Bikes. The cost of goodssold increased $1,048,000. This was a 31.8% increase. The fact that net sales increased by33.3%, and cost of goods sold increased by only 31.8% was a significant factor in these twoyears. This was a positive result, because net sales increased more than what the cost of goodssold increased. Competition Bikes found a way to sell more bikes at a lower cost for thecompany. This is why the company had an increase of 37.5% in gross profit.Selling ExpensesTotal selling expenses increased by 33% between years 6 and 7. This was expected, becausemost of the selling expenses are considered variable expenses. Variable expenses are expensesthat increase as production and sales increase. Sales commissions, distribution network support,and transportation out are all considered variable expenses. Knowing that net sales increased by33.3%, and these expenses increased by 33% shows they are variable expenses. This increasewas totally expected. Advertising expenses increased by 37.5% which is a little more than netsales. With the website creation and maintenance costs staying the same it helped balance outthe total selling expenses with the increase in net sales.General and Administrative ExpensesBetween years 6 and 7 total general and administrative expenses increased by 20.4%. Includingin these expenses are administrative salaries, executive compensation, employment taxes,utilities, payroll services-nonmanufacturing, research and development, depreciation expense,and other general and administrative expenses. Most of these expenses are considered fixedexpenses. Fixed expenses are considered expenses that are not directly related to production and
sales. With gross profit increasing by 37.5%, and these expenses only increasing by 20.4% is a positive result. The most noticeable changes in this expense group were research anddevelopment expense and utilities expense. Research and development increased by 37.4%, andthen utilities expense only increased by 3.8%.Operating IncomeThere was a positive increase in operating income. This was expected due to the fact gross
