Custom Snowboards Financial Statements Analysis

B1. Historical Analysis

Historical analysis of Custom Snowboards financial statements shows the company’s net sales from 2012 to 2014.

Net Sales

In 2012 custom snowboards net sales were $6,874,700, net sales and continued to increase by .2% in 2013. Sales continued to increase throughout 2014, with net sales of $6,955,200 an overall increase of 1.2% from 2012 two 2014.

Current Ratio

Custom Snowboards profitability was at its highest in 2013 when the company’s Current Ratio was 7.06 in 2013 which would suggest that Custom Snowboards ability to pay its debts and or liabilities was very strong, while still maintaining the normal day to day business operations (Gary, 2009). In 2014 Custom Snowboards current ratio fell by .5 to 6.56 however, the company was again able to maintain its daily operations and pay its short-term debts.

A current ratio of 4.20 could also be considered “too” high when compared to when it’s competitor Winter Sports because it could be an indication that Custom Snowboards should be investing the excess “cash” or not taking enough risks and investing money back into the company for continued growth and should be making a profit from those extra funds.

Net Earnings

Custom Snowboards financial statements also reveal a significant decrease in the company’s net earnings from 2012 to 2014. Custom Snowboards net earnings decreased tremendously in 2014 from 2012 by $85,275 or 47.7%.

Custom snowboards operating expenses increased overall from 2012 two 2014 x 8.2% or $146,000. The company’s increase in operating expenses, can be attributed to custom snowboards failure to reduce its general and administrative expenses, for instance custom snowboards utilities increase significantly from 2012 to 2014 x 9.2% or ( $22,000). In addition share of the company’s increased utilities, there was also a $40,000 or 19.1% increase in executive compensation. Overall, Custom Snowboards 9.2% general and administrative expenses increased by $137,200 or 14.3% (Gary, 2009).

B1a. Future Performance

Historical Net Sales

Custom Snowboards historical trend analysis from 2012 to 2014 shows a year-to-year increase for Custom Snowboards net sales of .2% or $16,100 from 2012 to 2013. Net sales increased again significantly from 2013 to 2014 by $64,400 or .9%. Although Custom Snowboards year-to-year increase shows significant growth, the company’s overall total net sales from 2012 to 2014 was actually 1.2% or $80,500.

Forecasted / Projected Net Sales

Custom Snowboards projected net sales for next 3years (2015, 2016 and 2017) indicate the company’s net sales will increase in 2015 by 3% or $208,656 compared to 2014 and then decrease in 2016 by $69, 552 or .9% compared to 2015. The company’s net sales are expected to improve or rebound in 2017 by $121,024 or 1.7% from 2026 to 2017.

Summary of Performance

Historical analysis shows Custom Snowboards net sales, seem to decrease significantly in the second year and rebound the following year and future net sales for the company are predicted to continue decrease and the second year (2016) and rebound or increase again the third (2017).

Continued analysis also could suggest the decline in Custom Snowboards sale during the second year of sales could be due to the condition of the economy. With the majority of Custom Snowboards customers, being competitive professional snowboarders who receive sponsorship (Gary, 2009). Due to the decline in the economy over the last several years, a lot of sponsors have pulled back or cut back altogether on their sponsorship which has caused the decreased in Custom Snowboards net income.

The trend analysis shows that overall, net sales for Custom Snowboards will increase and decrease over the coming 3 years, with net sales peaking or at their highest in the 3rd year.

B2. Improvement

Analysis of Custom Snowboards overhead and manufacturing costs using the ABC costing method

Activity Based Costing (ABC) is a costing method that assigns manufacturing overhead costs to products in a more rational and specific manner, than the traditional approach of allocating costs.

Analysis of Custom Snowboards Manufacturing and Overhead Costs

Regular (non-personalized snowboard)

An analysis of Custom Snowboards manufacturing costs indicates a significant difference in the two costing methods represented. Traditional costing shows Custom Snowboards manufacturing overhead costs for the Regular snowboard line to be $1,068,982 and total production costs to be $4,444,125. In comparison to ABC costing, Custom Snowboards total manufacturing overhead costs are $546,863 and total production costs are $3,922,006.

There is a significant difference between the two costing methods. A difference of $522,119 for total overhead costs and a difference of $522,059 for total production costs for traditional / regular snowboards.

Further analysis also indicates a significant difference between traditional costing method and the personalized snowboard. Traditional manufacturing overhead costs for personalized snowboard are $334,048 compared to activity based costing for personalized snowboard $1,403,030 which is a substantial difference of $1,068,982

Recommendations for Improvement

Custom Snowboards can use the ABC costing method to improve on its manufacturing overhead cost. The activity based costing method will give Custom Snowboards, detailed cost data that is more organized and will allow the company to make better planning decisions regarding the organization. For example, based on the activity based costing / cost drivers, Custom Snowboards, will need to reduce the packaging and shipping time that is spent on the traditional snowboards because it costs the company almost triple to package and ship traditional/ regular snowboards ($37,377) compared to what it costs to package and ship custom/ personalized snowboards (9,344).

The analysis also indicates, that the manufacturing overhead costs for the Personalized product line are in excess, specifically the quality control area $300,938. Activity based costing (ABC) analysis will allow Custom Snowboards to adjust its costs in this area by either reducing spending or increase the number of units being produced.

JIT (Just in Time) as a cost improvement method

JIT is a cost improvement method that could also be beneficial to Custom Snowboards. JIT is a fairly simple inventory management tool, that is based the supply and demand principle, where the company buys only what is actually needed based on the demand for the product and what can actually be sold.

Custom Snowboards can utilize just in time (JIT) as a method of saving money and other resources (ex. Inventory) by operating a leaner business (Simmoms, n.d.)

The Just in Time cost improvement method will allow Custom Snowboards to cut down on its raw materials inventory costs. Custom Snowboards raw materials inventory and finished goods inventory increased by 1.2% ($450 and $1,680) from 2012 to 2014. Just in time cost improvement method will allow Custom Snowboards to decrease it inventory turnover ratio, which will, in turn save the company money. JIT will the company to prevent sales inventory from sitting in the warehouse, which is a waste of resources. The JIT systems will also give Custom Snowboards the opportunity to evaluate what they need in order to meet the daily demands of production, while saving time, money and resources.

Business Risks Assessment

B3. Internal and External Risks

A business risk is any circumstance or incident that could possibly have a negative impact on the day-to-day operations of a business or company. A risk can be either internal (Things that management has some control over.) or external (Outside the company’s control.)

Custom Snowboards can expect to encounter certain internal and external risks that will vastly affect the organizations profitability that are specific to international business expansion, such as: International Accounting Standards, Cultural Issues and Language Issues. External Risks include: Political, Environmental and International Legal Risks.

Internal Risks / European Expansion

  • International Accounting Standards

Expanding to Europe, can impose internal risks to Custom Snowboards with regards to International Accounting Standards.

Expanding, to Europe will cause changes to Custom Snowboards accounting systems.

International Financial Reporting Standards (IFRS) will cause Custom Snowboards to change its financial reporting system. The financial statements the Custom Snowboards is currently using (balance sheets, etc.) will have to be changed, and financial instruments that are not currently recorded in financial statements will have to be recorded·

 Cross-Cultural Issues

International business relations/ transactions are done in the same manner as in the United States. Culture differences may interfere with the way Custom Snowboards is able to do business internationally, the way international associates work and communicate with each other will be different from Custom Snowboards and become a risk to the company if they are unaware and unfamiliar with the cultural differences and issues. As an example, in India a potential associate may be nodding his head from side to side, which to an American may appear to be a negative gesture, but in India it is a gesture of understanding. (Moore)·

 Language

Language is another internal risks to Custom Snowboards European expansion. The language barrier between Custom Snowboards and its new employees and customers can cause conflicts to the business.

The importance of language comprehension should never be underestimated, as each language has its own particular nuances and meanings, at times not easily understood even with proper translation.

External Risks

Custom Snowboard also has to be aware of external risks that could / will have an effect on the company. A few external risks that can affect the company are the International Economy, Political and Legal risks will all have an impact Custom Snowboards.

Political Risks

Since Custom Snowboards, is considering expanding its business to Europe, the company could encounter Political risks depending on the political climate in the country. A country with an unstable, ineffective government and lacks a strong foreign trade policy will be unable to protect Custom Snowboards in the event of some sought of political uprising, for example, there will An incoming government may not be business-friendly, and may decide to increase tariffs or impose quotas.

Foreign Economic Risks

Doing business in a foreign country also comes with economic risks. Just like changes in to the United States economy will have an effect on Custom Snowboard revenue so will /does the foreign economy. Fluctuations, in the European market’s currency can lower profits when converting back to the home currency. The currencies of unstable governments can be detrimental to Custom Snowboards profitability. When the economy rises and falls, so does the demand for Custom Snowboards product. (Sheahan).

International Legal Risks

Changes in international tax laws and industry regulations can have a tremendous effect on a small manufacturing company, like Custom Snowboards. Custom Snowboard may find themselves unable to meet their debt obligations because of the large unexpected expenses, such as mandatory safety systems, new tax on carbon emissions or new tax laws. International regulatory risks and trade laws can also expose Custom Snowboards severe financial risks, if the company is caught off guard or is unaware of international legal system.

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