Financial Analysis

Custom Snowboards Inc

PART A - Chief Financial Officer Report Presentation

Custom Snowboards Inc Management has been considering an expansion to Europe since percentage of European total sales has been increased and it is expected that further growth in sales will be continued in near future. The focus of this report would be on preparing a report for Chief Financial Officer (CFO) that will be presented to Bank Vice President for extending a long-term loan to Custom Snowboards.

1. Financial Highlights

The financial position of Custom Snowboards highlights certain points that might directly impact on the loan officer decision. This point is related to the debt repayment. In order to see how company would be repaying debt, analysis of financial statement is important using different techniques. These techniques are vertical analysis and horizontal analysis (Warren, 2011).

According to theories, Vertical analysis determines that relationship of items with the base amount and this base amount for income statement is sales while for balance sheet it is total assets (Chandra, 2012). Custom Snowboards gross margin has been constant i.e. 30.4% from year 12 to year 14, though trend has been increasing but with same percentage. Operating expenses trend has been constant i.e. 11.8% in these three years. This trend further states that Custom Snowboards has been maintaining their gross profit and operating expenses ratios in line with their sales (Geoffrey, 2004). General and Admin Expenses of Custom Snowboards has been divided into sub categories and due to fluctuation in these has resulted rise in total General and Admin Expenses with 17.1% in year 14 while it was 15.5% in year 13 and 14.6% in year 12. Main rise was in administrative salaries from 3.2% in year 12, 3.3% in year 13 and in year 14 it increased to 3.9%. Executive compensation also increased in year 14 with 3.4% while it was constant in year 12 to year 13. Slightly increase was observed in deprecation with 1.6% in year 14 and previously it was steady to 1.5% in year 12 and year 13. Utilities & Services also increased in year 14 with 4.1% while it was just 3.8% in year 13 and 3.6% in year 12 and lastly Other General and Admin Expenses also increased with respect to sales in year 14 i.e. 2.7% whereas this was lower in year 13 and 12 i.e. 2.4% and 1.8% respectively. Therefore, due to higher total General and Admin Expenses and operating expenses in year 14 as compared to previous years, the trend of operating income declined from 4.1% in year 12 to 3.1% in year 13 and 1.5% in year 14. Custom Snowboards Earnings before Income Taxes in year 12 was 187,000 and it fell to 129,200 in year 13 i.e. 1.9% reduction in year 13. This trend continued in year 14 with 0.3% i.e. it fell to 22,300. This declining trend is not attractive to investors and shareholders as this shows that company does not possesses enough money to meet company as well as investors ...