The Horizontal Analysis : The Vertical Analysis

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Net Sales The horizontal analysis provides a good year over year review of how Custom Snowboards has performed. Net Sales increased 0.5% in year 13 over year 12. This indicates steadiness within the market. In year 14, Net Sales declined by -3.4%, or -$225,400, from year 13. This reflects a weakness to the company and instability within the market. This information is important to a banker as it represents revenue earned by the company for sales of the snowboard being produced. Profitability is driven by revenue and reflects the strength of the company’s financial position. Operating Income Operating income in year 12 was $269,500. In year 13, it declined by -23.56% to 206,000. From year 13 to year 14, it declined another -52.91% to $97,000. Again this is a sign of weakness within the company, which results from a decline in sales along with an inefficiency in operations. This is important to the bank to help identify strengths or weakness within the company’s ability to manufacture a profitably level as well as continue to grow and increase sales. Earnings Before Income Taxes (EBIT) EBIT decreased by -30.91%, or $57,800, in year 13 compared to year 12 and continued to decrease in year 14 by -82.74%, or $106,900. This reflects a weakness due to no reduction in expense related to the General and Admin Expense (G&A) section; items such as Administrative Salaries, Executive Compensation and Other General and Admin Expenses. The increased G&A expenses cut into profitability and shareholder value. This is important to help the banker determine the value of the company and its ability to generate profit. “It is a useful calculation as it shows how profitable a business is before loan decisions and tax considerations are included to ar... ... middle of paper ... ...t to the banker as it is an indicator of whether Custom Snowboards can make interest payments on its debt. Since this ratio is low, this would be a concern for the banker. “Net Profits Margin” – Custom Snowboards has a lower than average net profit margin. Industry average is 5.1% while Custom Snowboards has a margin of 1.5% in year 13 and 0.3% in year 14. This margin is important to the banker as it reflects the amount of revenue kept as Net Earnings, or Net Income. Solvency “Debit Ratio” – Custom Snowboards a debt ratio of 52.5% in year 13 and 50.4% in year 14. This debt ratio is above the industry average but not over a 65% rule of thumb percentage. The debt ratio helps to understand a company ability to meet is financial obligations. The banker is interested in this rate to evaluate Custom Snowboards for their current solvency and/or ability to acquire new debt.
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