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Financial Analysis

Financial Analysis 1
Question-Answers
1.
Biker are better Inc.
Income Statement
(for the year ending 31st December 2018)
Particulars 2018
Revenue
$
10,750,000.00
Less: Cost of goods sold
$
6,689,500.00
Gross Profit
$
4,060,500.00
Operating expenses
Selling expenses
Advertising expenses
$
330,000.00
IT network Expense
$
45,000.00
General & Admin Expenses
Rent
$
200,000.00
Salaries
$
1,125,000.00
Sales salaries and commission
$
425,500.00
Utilities
$
145,000.00
Maintenance & Repair Expenses
$
75,000.00
Insurance
$
65,000.00
Depreciation Expense and Equipment
$
450,000.00
Total Operating expenses
$
2,860,500.00
Earnings before interest and tax
$
1,200,000.00
Interest
$
93,750.00

Financial Analysis 2
Earnings before tax
$
1,106,250.00
Less: Tax
$
387,188.00
Profit After Tax
$
719,062.00
Biker are better Inc.
Income Statement
(for the year ending 31st December 2019)
Particulars 2019
Revenue $ 11,287,500.00
Less: Cost of goods sold $ 7,191,213.00
Gross Profit $ 4,096,287.00
Operating expenses
Selling expenses
Advertising expenses $ 363,000.00
IT network Expense $ 47,250.00
General & Admin Expenses
Rent $ 205,000.00
Salaries $ 1,153,125.00
Sales salaries and commission $ 457,412.00
Utilities $ 148,625.00
Maintenance & Repair Expenses $ 82,500.00
Insurance $ 66,625.00
Depreciation Expense and Equipment $ 450,000.00
Total Operating expenses $ 2,973,537.00
Earnings before interest and tax $ 1,122,750.00
Interest $ 75,000.00
Earnings before tax $ 1,047,750.00
Less: Tax $ 366,713.00
Profit After Tax $ 681,037.00
Biker are better Inc.
Balance Sheet
(as at 31st December 2018)

Financial Analysis 3
Amount Amount
Assets
Current Assets
Cash
$
1,250,000.00
Accounts Receivable
$
950,000.00
Office Supplies
$
75,000.00
Inventory
$
1,750,000.00
$
4,025,000.00
Non-Current Assets
Manufacturing Equipment
$
4,500,000.00
Less: Acc. Depreciation Equipment
$
3,150,000.00
$
1,350,000.00
Total Assets
$
5,375,000.00
Liabilities
Current Liabilities
Accounts Payables
$
925,000.00
Interest payable
$
93,750.00
Income taxes payable
$
387,188.00
$
1,405,938.00
Non-Current Liabilities
Long-Term Notes Payable
$
1,250,000.00
$
1,250,000.00
Shareholder's Capital
Common Stock
$
1,500,000.00
Less: Withdrawals
$
(75,000.00)
Retained Earnings
$
575,000.00
Add: Net Profit
$
719,062.00
Less: Dividend paid
$
-
$
2,719,062.00

Financial Analysis 4
Total Shareholder's Liabilities and
Equity
$
5,375,000.00
Biker are better Inc.
Balance Sheet
(as at 31st December 2019)
Amount Amount
Assets
Current Assets
Cash
$
1,757,438.00
Accounts Receivable
$
1,021,250.00
Office Supplies
$
78,750.00
Inventory
$
1,925,000.00
$
4,782,438.00
Non-Current Assets
Mnaufacturing Equipment
$
4,500,000.00
Less: Acc. Depreciation Equipment
$
3,600,000.00
$
900,000.00
Total Assets
$
5,682,438.00
Liabilities
Current Liabilities
Accounts Payables
$
1,040,625.00
Interest payable
$
75,000.00
Income taxes payable
$
366,713.00
$
1,482,338.00
Non-Current Liabilities
Long-Term Notes Payable
$
1,000,000.00
$
1,000,000.00
Shareholder's Capital
Common Stock
$
1,500,000.00
Less: Withdrawals
$
(75,000.00)

Financial Analysis 5
Retained Earnings
$
1,219,063.00
Add: Net Profit
$
681,037.00
Less: Dividend paid
$
(125,000.00)
$
3,200,100.00
Total Shareholder's Liabilities and
Equity
$
5,682,438.00
2.
A
Cash Flow to Creditors 2019
Interest paid
$
75,000.00
Net borrowings
(Ending long term debt-
beginning long term debt)
$
1,000,000.00 0.075
B
Cash Flow to shareholders 0.075
C
Net income
$
681,037.00
Add: Non cash Expense
$
450,000.00
Less: Increase in working capital
$
3,300,100.00
Operating cash flow
$
(2,169,063.00
)
D
Net capital Spending
Equipment
$
4,500,000.00
Less: Depreciation
$
450,000.00
Total Net capital spending $

Financial Analysis 6
4,050,000.00
E
Changes in networking capital
Current Assets - current
liabilities
$
3,300,100.00
F
Cash Flow from Assets both
ways
$
5,682,438.00
3.
Bikers Better
Inc. Honda
Ratio's 2018 2019 2019
Current ratio Current assets
$
4,025,000.00
$
4,782,438.00 7347249000
Current liabilities
$
1,405,938.00
$
1,482,338.00 5981124000
2.86 3.23 1.23
Quick ratio Quick assets
$
3,950,000.00
$
4,703,688.00 4874153000
Current liabilities
$
1,405,938.00
$
1,482,338.00 5981124000
2.81 3.17 0.81
Debt to Equity Total Debt
$
1,250,000.00
$
1,000,000.00 5872208000
Total Equity
$
5,375,000.00
$
5,682,438.00 8267720000
0.23 0.18 0.71
Trade Receivables
days Trade Debtors
$
950,000.00
$
1,021,250.00 793245000
Revenue *365
$
10,750,000.00
$
11,287,500.00 15888617000
32.26 33.02 18.22
Gross Profit
Margin Gross Profit
$
4,060,500.00
$
4,096,287.00 3,307,668,000

Financial Analysis 7
Net Sales
$
10,750,000.00
$
11,287,500.00
$
15,888,617,000.
00
0.38 0.36 0.21
Profit Margin Net Profit
$
719,062.00
$
681,037.00 524,071,000
Net Sales
$
10,750,000.00
$
11,287,500.00
$
15,888,617,000.
00
0.07 0.06 0.03
Return on Equity
Profit avail to
owners
$
719,062.00
$
681,037.00 524,071,000
Average Equity 2719062 2959581 8100629000
$
0.26
$
0.23
$
0.06
Return on Assets Net profit (loss)
$
719,062.00
$
681,037.00
$
524,071,000.00
Average total
assets 5375000 5528719 19884143000
$
0.13
$
0.12
$
0.03
Time Interest Ratio EBIT
$
1,200,000.00
$
1,122,750.00 726,370,000
Total Interest
Expenses
$
93,750.00
$
75,000.00 13217000
12.8 14.97 54.96
4.
Financial Ratio helps the company to evaluate the financial situation in terms of profitability,
efficiency, liquidity and the others ratio (Wadhwa, 2019) According to the above evaluation of
financial situation of the organization, it has been found that the company has the ability to pay
all the short term obligations by using the assets. It has been estimated the amount of current
assets has been increases from the previous years with the increasing current liabilities. The

Financial Analysis 8
current ratio of the company is 2.86 and 3.23 in 2018 and 2019 respectively which states that the
liquidity position of the company has been improved. Strong liquidity position of the company
helps it to pay the short term obligations. As compare to its competitor Honda, the liquidity
position is not strong as the high amount of current assets is high as compare to current liabilities
and there is less percentage of difference of current assets and liabilities (Robinson, 2020).
According to debt to equity ratio, it has been assessed that the total debt of the company has been
decreases such as $1,250,000.00 and $1,000,000.00 in 2018 and 2019 respectively. Biker Better
Inc. has high amount of equity which describes that it uses the liabilities as the sources of funds
to finance the operating activities (Kennon, 2018). In 2018 and 2019, $5,375,000.00 and
$5,682,438.00 are the amount of total equity. Honda also has high amount of total equity as
compare to liabilities but it is observed that it has the high amount of liabilities due to which its
solvency ratio will be maintained (Johnston, 2018).
As per the gross profit margin ratio, it is observed that the company has the capacity to generate
the profit from net sales. The gross profit of Biker Better Inc. has been increases with the net
sales with the minor percentage (Schroeder, Clark, and Cathey, 2019). The different between the
gross profit is less than difference of net sales as the net sales is high. It has been calculated that
gross profit amount is less at the amount of net sales which states that the ability of the company
is less in order to generate the profit. The percentage of gross profit margin is 21% which states
the capacity to generate the revenue is less.
The efficiency ratio of Biker Better Inc. describes the company collects the amount in large
number of days as compare to its competitors. The company collects the amount in 32.26 and
33.02 in 2018 and 2019 respectively. Honda is the competitor of the company that collects the

Financial Analysis 9
amount in 18.22 days which is less than the Bikers Better. The efficiency ratio of Bikers Better
states that the company operates the business effectively and smoothly in the market. Collecting
the amount of money on time helps the company to pay all obligations due to which the chances
of facing insolvency have been increases (Storey, Keasey, Watson, and Wynarczyk, 2016).
Time Interest Ratio describes that Bikers Better Inc. covers the interest amount in few days as
compare to Honda. The amount of total interest expenses has been decreases from 2018 to 2019
which helps to covers the interest amount with earning profit of the company such as 12.8 and
14.97 in 2018 and 2019 respective manner. The time interest ratio of Honda is 54.6 which states
that the company can cover the amount of interest expense in large days due to which its time
coverage ratio is decreasing (Honda, 2019).
At the end, the financial position of Bikers Better Inc. has improved as the expenses have been
decreases and it is also effective in terms of collecting and paying the amount of liabilities. As
compare to competitors, its financial position of Honda is much better than Bikers Better.

Financial Analysis 10
References
Honda. (2019) Honda Motor Co., Ltd. (HMC). Available From:
https://finance.yahoo.com/quote/HMC/financials?p=HMC [Accessed 5/02/2020].
Johnston, K. (2018) Effect of Liabilities and Share Equity on a Company. Available From:
https://smallbusiness.chron.com/effect-liabilities-share-equity-company-10659.html
[Accessed 5/02/2020].
Kennon, J. (2018). Assets, Liabilities, and Shareholder Equity on the Balance Sheet.
Available from: https://www.thebalance.com/assets-liabilities-shareholder-equity-explained-
357267 [Accessed 1/02/2020].
Robinson, T.R. (2020) International financial statement analysis. John Wiley & Sons.
Schroeder, R.G., Clark, M.W. and Cathey, J.M. (2019) Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Storey, D.J., Keasey, K., Watson, R. and Wynarczyk, P. (2016) The performance of small
firms: profits, jobs and failures. Routledge.
Wadhwa, B. (2019) Financial ratios: The precarious core of fundamental analysis. Frontiers
Journal of Accounting and Business Research, 1(1), pp.33-35.