TEMPLATE Financial Analysis Task I Competition Bikes, Inc.A1.a. Competition Bikes Horizontal Analysis: Results The present period of the company has been experiencing a notable decrease in the Net Sales as opposed to our earlier fiscal years. Financial Years 6 and 7 were markedly better than our current 7 and 8. A quick deduction and study has determined the reason for this economic downturn to be the present economy. Competition Bikes, Inc. does however, expect an increase in Unit Sales over the course of the next three years, but will also be projected to remain below our High Unit sales of Year 7. Considering that our sales have decreased, it is positive to note that the percentage-to-Net Sales of the Cost of Goods Sold remained around 73% through years 6 – 8 in our Vertical Analysis. What this depicts is that the price of our raw materials has remained rather stagnant, as has the costs of labor. We have also reduced our Advertising Costs by approximately 16.3%, whereas it had been up by 37.5% percent from Year 6 to 7. This is due to two consecutive years of reduced sales of our product. As for Marketing, it is normal procedure to reduce its budgets when the economy enters a bear market. However, this is not always the wisest course of action due to the fact that companies must fight within an ever-constricting marketplace for potential sales that still remain. Pertaining to our overall General and Administrative Expenses our company has remained in a relatively flat status with reviewed over the past several years to the present. There is a notable increase in our overall Utilities expenses, ranging around 11.1%, which is probably because of increased power costs passed on from electrical companies. That is up, and impressively so from our Year 6 to 7 which Utilities were only hovering in the 3.8% range. There is, however, a particular section that is worthy of a more detailed examination. The Other General and Admin Expenses are up. Way up, in fact. Estimates are a very noticeable 7.6% ($12,000.00) from last year. That’s a marked improvement from Year 6 to 7 where we were reporting 31.1% (37,500.00)! All the while our expected sales have decreased by 15% in the same timeframe. Even more concerning is our Operations. The Operating Income has dropped by a staggering -69.1%! This is a considerable difference from our Year 6 – 7 Operating Income, which was reported at $191,820.00 or 154.6%! It should go without saying that our Operating Income, that is, things like the Utilities and Salaries, are always paid regardless of whether or not there is profitable sales; and this in turn is severely shrinking our corporate earnings cash considerably more than just a reduction in our sales percentages. One of the quick solutions to overcome this issue would be to reduce the number of hours that our Workforce in Production utilizes. This would allow for the Operating Income figure to reduce along with the reduced am ...

1. TEMPLATE
Financial Analysis Task I
Competition Bikes, Inc.A1.a. Competition Bikes Horizontal
Analysis: Results
The present period of the company has been experiencing a
notable decrease in the Net Sales as opposed to our earlier fiscal
years. Financial Years 6 and 7 were markedly better than our
current 7 and 8. A quick deduction and study has determined
the reason for this economic downturn to be the present
economy. Competition Bikes, Inc. does however, expect an
increase in Unit Sales over the course of the next three years,
but will also be projected to remain below our High Unit sales
of Year 7.
Considering that our sales have decreased, it is positive to note
that the percentage-to-Net Sales of the Cost of Goods Sold
remained around 73% through years 6 – 8 in our Vertical
Analysis. What this depicts is that the price of our raw
materials has remained rather stagnant, as has the costs of labor.
We have also reduced our Advertising Costs by approximately
16.3%, whereas it had been up by 37.5% percent from Year 6 to
7. This is due to two consecutive years of reduced sales of our
product. As for Marketing, it is normal procedure to reduce its
budgets when the economy enters a bear market. However, this
is not always the wisest course of action due to the fact that
companies must fight within an ever-constricting marketplace
for potential sales that still remain.
Pertaining to our overall General and Administrative Expenses
our company has remained in a relatively flat status with
reviewed over the past several years to the present. There is a
notable increase in our overall Utilities expenses, ranging
around 11.1%, which is probably because of increased power

2. costs passed on from electrical companies. That is up, and
impressively so from our Year 6 to 7 which Utilities were only
hovering in the 3.8% range. There is, however, a particular
section that is worthy of a more detailed examination. The
Other General and Admin Expenses are up. Way up, in fact.
Estimates are a very noticeable 7.6% ($12,000.00) from last
year. That’s a marked improvement from Year 6 to 7 where we
were reporting 31.1% (37,500.00)! All the while our expected
sales have decreased by 15% in the same timeframe. Even more
concerning is our Operations. The Operating Income has
dropped by a staggering -69.1%! This is a considerable
difference from our Year 6 – 7 Operating Income, which was
reported at $191,820.00 or 154.6%!
It should go without saying that our Operating Income, that is,
things like the Utilities and Salaries, are always paid regardless
of whether or not there is profitable sales; and this in turn is
severely shrinking our corporate earnings cash considerably
more than just a reduction in our sales percentages. One of the
quick solutions to overcome this issue would be to reduce the
number of hours that our Workforce in Production utilizes.
This would allow for the Operating Income figure to reduce
along with the reduced amount of production units produced.
Now the bad news. The severe decline in Operating Income
will carry to our Bottom Line. At present, our Net Earnings
have been sharply reduced by 81.6%! In Year 7, we made
$170,121. In Year 8 that was a paltry $31,286! We’re
practically back to what we had as a Net Earning in Year 6,
which was $41,148. Just about the only good news is that our
company remains in the Black for this year.
As for our Comparative Balance sheet we have some additional
good news to make light of. Our Cash and Cash Equivalents
have made a noteworthy increase between Year 7 and 8. That’s
up markedly from Year 6. This is due, in part, from our

3. considerable sales in Year 7 and its subsequent carryover. Still,
the analogous reduction in our sales has likewise forces our
Accounts Receivables to lower by -15.0%. This is a stunning
change from Year 6, where we were gilded with 164.3%.
Due to the fact that we are projecting additional lower sales, the
company should consider the idea of reducing both of these
categories so as to avoid committing our cash on hand with any
surplus inventory that may take additional time to sell and/or
liquidate. Still, there is a noticeable increase in our Current
Assets (16.5%) in Year 7 – 8, opposed to 31.5% in Years 6- 7.
We should take from that, a positive sign that our Cash on Hand
is being properly managed and distributed.
Our bottom line in Total Assets is showing an overall reduction
of .02%, almost certainly due to the reduction of sales and our
decreasing growth. This is a difference from our earlier posting
in Year 6 – 7, where we had Total Assets of 2.2%.
Regarding Liabilities, it is notable to say that the Accounts and
Notes Payable have increased considerably by 33.3% in Years 7
– 8, a considerable change from Year 6 – 7 when we were
looking at 192.0%. One possibility for this could be due to an
increased in the amount of on hand raw materials and / or
inventory in lieu of a lack of sales of said inventory. Although
our Liabilities Total is lower to -1.9% in Years 7- 8, as opposed
to Years 6 – 7 when we had 1.2%, our Current Liabilities
remain at 28.5%. That’s a notable change from Years 6-7 when
we had 122.4%. In short; due to our reduction of sales by 15%,
our Total Liabilities and Equity only is reduced by a minor
amount of -.02% in Year 7-8, unlike before with Year 6-7 at
2.2%, like our Total Assets.
A1.b. Competition Bikes Vertical Analysis: Results
Regarding our Vertical Analysis of the company, one of the first
things that we need to do is look at our Comapritave Income
Statements for the years 6 thru 8. As we can readily note, our

4. Gross Profits have remained reasonably in the 27% region on
average, even with a reduction of overall Net Sales. Also
readily notable is the Total General and Admin Expenses line,
which shows an overall increase from 15.5% in Year 7 to a high
of 18.4% in Year 8. That’s an increase of 2.9%. What this
immediately tells us is that we need to begin cost cutting
measures. This 2.9% is lowering our Operating Income to a
paltry 1.9%! A considerable decrease when compared to the
5.3% from Year 7! In any regard, this can be taken only
negatively in that it does not display any signs of growth. In
addition, our overall Net Earnings have be reduced to a shabby
.6% of our Net Sales in the past year when we had 2.8% in Year
7. This is not good, and could signal bad news to lending
companies, because it can show, potentially, an inability to pay
off any accrued debt.
On our Vertical Analysis Balance Sheet, the company is
displaying an increase in the Total Current Assets column of
36.8% as opposed to the previous Year 7 which had only 31.5%.
This should tell us that our company is in a good position to pay
out on its present debts, due to liquidity of product and units.
However, again we caution, that because our current work
process, inventory percentages and raw materials are still
relatively constant with Years 6 and 7, it could be a potential
herring due to our still-sagging sales, in addition to the
possibility of having too much cash and resources committed to
sluggish inventory reduction.
What makes this disturbing is that the numbers are showing up
more notably in our Current Liabilities section up from 5.4% to
a worrisome 7.0%. When considering that it was only in Year 6
that we have 2.5%, this is something to take serious note of, as
it could be a sign that our company is possibly taking on
additional debt and to a degree that our sales will not be able to
maintain.
A1.c. Competition Bikes Trend Analysis: Results

5. Competition Bikes Historical Trend Analysis covers a section of
three years, beginning with Year 6 as its base. There is
immediately a notable increase from Years 6 to 7, whereas only
a marginal increase of 13.3% from Year 8 compared to Year 6.
If we then use Year 8 as our projection base for an additional
three years, our company will continue to show modest growth
even in the present economy. This is, of course, contingent
upon smart money management, reduction of inventory, and
investment capital so that we can maintain the Net Income to
Net Sales of around 3.5%.
A1.d. Competition Bikes Ratio Analysis: Results
Regarding our company, there are a few key ratio’s that are
designed to look at the company’s overall health and also how
we are viewed by our lenders. Firstly, if we view the Current
Ratio (which is 5.25%) of Current Assets (31.5%) to our
Current Liabilities (1.2%) our Year 8 Ratio is: 5.31:1, slightly
different from Year 7. Insofar as our company can meet its
Current Liabilities, we’re in good shape. Typically, the
industry standard hovers around a 2:1 ratio.
Secondly, we will review the Acid-Test Ratio. This is
considered a more inflexible ratio because it does not include
the worth of the inventory. Again, the industry does have a
standard for this, which is usually about 1:1. Our Company, as
of Year 8, is hovering in the 4.14 range, down from Year 7’s
4.41. Typically, the higher the ratio, to more suggestive it is
that a company is able to manage its present debts, however, it
can also hint that the company is not fully using its on-hand
funds so as to increase its profits.
Liquidity
Our Company, Competition Bikes, has maintained a reasonably
current ratio for Year 7 (5.79) and Year 8 (5.25), respectively.
Even when you consider the present economic situation and its
grim status with our decreased sales, our company is still
commanding a higher ratio when held in comparison to our
nearest competition; Two Wheel Racing. At present, Two
Wheel Racing holds a ratio of 4.2 in their Year 8. Regardless of

6. this, in terms of our own company, we are going to be able to
meet our present obligations of debt at 5.25x their present
totals.
Furthermore, we can also note reasonably the same results
within the Acid-Test Ratio as well, holding a 4.41 in Year 7,
and a 4.14 in Year 8; leveraged against the Manufacturing
Industry standard normal of only 1.0. At present, our company
is ahead of our neared competitor, Two Wheel Racing, which
has only a 3.4, respectively. This can be best explained by a
Low Finished – Work in Process Inventory.
For Competitive Bikes, Inc. to remain solvent, we are going to
need to continue maintaining a Current Ratio of 1.0, as well as
an Acid-Test Ratio of the same. With a Current Ratio hovering
around 5.25, we are firmly solvent. Still, the company is, at
present, slightly more liquid. Not only will it be able to manage
and meet all current debts, but we shall have assets left over.
This can best be explained by the growth within the Current
Asset, and the paying down of the Current Liabilities.
In summation, this presents to our creditors that we are fully
capable of repaying any debt accrued. This also lets the banks
note that we are worthy of credit, and if we are held in
comparison to our competitor companies, such as Two Wheel
Racing, our Investors will note that we are doing reasonably
well.
Leverage
At present, the standard Debt Ratio in our industry stands
between 57% and 67%. Our company is well situated far below
that percentage in both scoped years, at 47% in Year 7 and
46.2% in Year 8, respectively. Unfortunately, we’re above our
competitor by nearly 10%. At the moment, (Year 8) 46.2% of
our company is bankrolled by debt financing. We can accept
this as reasonable as it shows that we’re considered ‘low risk’ if
we will need any increased funding.

7. Our Times Interest Earned is considerably lower in Year 8 at
1.77 when compared to Year 7’s 5.27. We’re considerably
lower than our competition, which hovers around 4.24. We can
increase our Ratio by collecting account receivables. A high
level of Times Interest Earned affects our Return on Common
Equity, by increasing it. However, from an operating
standpoint, a higher ratio tends to lower interest costs.
Profitability Ratio
For two years running (7 & 8), we’ve maintained a 27%
Gross Profit Margin. This is lower than our competitor, who is
maintaining 32.1%. Although our company holds an average
status markup on the products we supply, we can further
increase our profit margin by slightly increasing the product
price and still maintain our good standing within the
marketplace.
Our Return on Total Assets has seen a dramatic decrease
from a solid 4.0% to a staggeringly low 0.7%. the reduction in
the Return on Total Assets is directly affected by our
stockholder’s growth and equity at the same time. Two Wheel
Racing presently hold a markedly higher ROTA at 4.80%. We
can improve our own ratio and become more compariable to our
competitor by increasing the sales prices of our product, while
lowering our present operation expenses.
Additionally, due to the increased cost of Operations in
collusion with our notable lackluster Sales in Year 8; we can
see a drop in our Operating Profit Margin. Year 7 held a 5.3%
margin, sharply lowering in Year 8 to a shabby 1.9%. When we
compare this to our competition, Two Wheel Racing, this is a
shameful percentage. It means that for every dollar we spend,
we get only 1.9 cents profit! Such a percentage is almost
criminal, especially when you consider that our competition’s
Return on Common Equity is a whopping 8.1%! It is
abundantly clear that they have managed their cash resources
quite commendably in the past year.
Overall, when we take into account the sum ratios of our
Operating Profit Margins, our Net Profit Margins, and our Gross

8. Profit Margins; as previously discussed in our earlier sections,
they have all been largely in part been affected by the overall
decrease in Net Sales. While our company can still boast of
profit and a reasonably healthy and established balance sheet; I
must note that the analysis could potentially be worrisome for
those investors and lenders’ who deal with our company. Such
Ratios, and reduction in Net Sales can lead to questions as to
whether or not Competition Bikes, Inc. will be capable of
realizing the estimated sales figures for the next three years. In
each instance of our Ratios mentioned, we have seen a
substantial drop in our percentages from the highs of Year 7.
Of particular note is our Earnings per Share. This Ratio is
a powerful gage of a company’s profitability. Essentially, what
it does is show whether or not a company has any earning
power. While Year 7 clearly shows that we were highly
competitive with a .17, our Year 8 fell dramatically to a piddly
.03/per share. This is scathing, especially when you consider
that our competitor is hovering at .08/per share. Therefore, in
order to increase this ratio, it is imperative that we hit all sales
goals going forward and without delay.
Finally; we have the Price / Earnings Ratio to consider.
What this Ratio informs us of is whether or not the market will
pay for our company. In this instance, as many others, the
higher this number goes, the better it is. Competition Bikes has
decreased from Year 7 at 29.41 to 23.33 in Year 8. Two Wheel
Racing is maintaining a solid 29.00 for its P/E Ratio. Our
number is lower than our competition, and that is equally
troubling, especially when you consider that last year we were
higher. Although their P/E is at present, higher than ours; we
can look towards this as a challenge and perhaps we can
marginally increase this ratio by careful management of
resources, additional product development, and research.
Overall, the conclusion is that our company Competition
Bikes, Inc. is standing reasonably well against the competition;
Two Wheel Racing. While we are lagging in several key
Ratios, we are still outperforming them in the ones that matter

9. the most. It is evident that a number of their Ratios are too
high, and it’s quite possible that they will have to employ new
sales methods to maintain their numbers.
A2. Competition Bikes Working Capital
Our company presently has reasonable working capital which is
based off of the Total Current Assets minus Total Liabilities.
Our position at present will allow us to maintain solvency
through this current turbulent economy. Moreover, we
presently has a noted excess of workable capital which we may
be able to utilize to increase or generate additional profits.
Doing so will have the added benefit of increasing our
attractiveness to potential lenders and investors.
However, that said, it should also be noted that no matter how
good a company may look through its Balance Sheets, there’s
always room for improvement; and there’s always a way that a
company can put its working capital to better use. Potentially,
a good way for the company to boost its cash flow would be to
enhance its collections processes.
Presently, our company issues a bill of lading to its distributors
for the raw materials which they’ve ordered that have a Net/30
Day Term issuance. We, in turn, are handed a bill of lading
from our suppliers for Net/15 Day Term issuance. Therefore, in
the interests of increased efficiency of our collections process,
our company should issue its bill of lading at once; so as to
become congruent to a Net/15 Day Term Issuance or as
purchased.
As of Competition Bikes present working capital, as of Year 8,
we held over 1.5 Million in Net Working Capital. This is up
from Year 7 which maintained 1.3 Million, and Year 6 at 1
Million.
For the most part, this displays a notable upward trend in our
net working Capital and cash over the course of the past three
fiscal years. In order to maintain a continued upward tick in
our Working Capital, it is recommended that all company
contracts pertaining to our suppliers, be renegotiated for a
Net/30 payment term so as to meet with our obligations towards

10. full payment for good and services, as well as to avoid paying
any late fees or penalties. The result of doing this will be best
shown by increasing our company’s net income as well as being
able to pay off any other possibly investing funds or interests
owed to other companies.
Furthermore, since we typically expend our payment terms to
our customers (Usually at a Net/30 Payment as well), according
to our workbook, during the Year 8, our customers were paying
considerably later than 30 days. This is unacceptable.
Therefore, we are going to recommend that new policies
towards collection of payments and outstanding dues are made.
This can be done through independent collection agencies, or
more aggressive internal measures, up to and including
increased interest on those delinquent accounts of uncollected
sums, percentage-based penalties, and other added fees to
motivate them to complete their payments to us. It is the
opinion of myself and team that should these actions be
implemented within the company, Year 9 will quickly generate
funds that can add to our Research, or possibly our Marketing /
Advertising, or even payment of debt.
Also, it is the opinion of myself, and team, that any additional
funds or working capital be immediately utilized in the
expansion of our production lines, and operations. Such
spending of working capital should only be for the increased
ROI of the company, our investors, and overall profit.
Finally; we need to look at reducing the amount of our Raw
Materials Inventories, and our Work in Progress Inventory.
Year 7 saw us with an 88.8k RMI, and Year 8 gave us an
increase to 91.5k. While less than a tenth percent increase, it is
increasing and will trend upwards if nothing is done. Work in
Progress for two consecutive years has remained relatively
consistent at 3.0%, but in Year 6 was only 2.4%. Between the
two of them, we’re carrying over 200k load, which isn’t overly
necessary. It is my opinion that we begin working new
contracts with our suppliers to allow for On-Demand Sales, so
that we can increase our inventory on an As Needed basis.

11. In previous statements, we have markedly noted that the costs
of Utilities as well as our General and Administration costs
have both gone up. Since a good company should be examining
all possible ways to reduce costs, perhaps we should also speak
with our utility company and discuss these costs, seeing where
best we can find ways to lower them. Having the utility
company come out to our sites and inspect lines, circuits, and
generators for an evaluation may be helpful.
Additionally, to increase our working capital, we can enter into
negotiations to modify the pricing arrangements with our
suppliers. Considering the economic realities of the early 21st
century, and the hardships in this market, they may be more
willing to amend pricing to their customer base.
Lastly, there is one finally thing that our company can do with
any additional working capital that it may be able to accrue.
Shareholders. Shareholders are our public interest, and since
their opinions matter, we would do well to listen. First,
shareholders are not known to be enthusiastic about companies
that cling to their additional cash. Miserly mentalities do not
display progressive company’s, they prefer investiture which
shows forward thinking. We can do this thorough a dividend
program, or possibly through paying down any outstanding
long-term debts that our company has.
Shareholders also are champions of innovation. They love
seeing when a company they hold stock in increases its research
to enhance products, because these typically increase sales and
sales increases a bottom line and the worth of the company
stock.
A3. Competition Bikes: Internal Controls
One of the things that our company does to manage operations
is to hold an inventory of our raw materials so that we can
manufacture our bicycles based on our monthly budget and
forecasting. Presently, the way things are done is thus: our
department for purchasing reviews the inventory on a monthly
basis, and procures materials based on our needs for the next
month. One we have obtains the parts, they’re sent to our

12. production facilities and if those parts are not utilized then they
are returned to our Raw Materials Inventory at the end of that
month, at which time the purchasing department again can
review inventory to see what is needed for the next month after
that.
Ladies and Gentlemen, this operation has several notable flaws
in the manner in which we do our Raw Materials Purchasing.
Let us begin by noting that by waiting until the last days of a
fiscal month to forecast, bid, and place an order for our Raw
Materials is highly ill-advised, not to mention foolhardy. It
shows that Competition Bikes will be unlikely to adapt quickly
to any situation regarding the On-Demand need for those raw
materials. What are we to do if there is a sudden shortage of a
particular component, and our supplier has a backlog? Our line
would shut down for length of waiting!
The easiest solution to this would be to obtain additional sock
materials at a pre-defined amount, so that in the event of such a
shortage we will be able to cope through the period of
inflexibility on that particular part. In the meantime, with our
emergency reserve parts packed away, our company should
procure additional materials on an as-needed basis; thereby
getting to the production facility on time.
Secondly, there is the not-so-rosy thought of keeping around a
pile of raw materials and parts in our production facility, and
then shipping them back to inventory at the end of the month.
This is like corporate schizophrenia, with our employees racing
around in some mad dash to collect all the unused materials,
send them back to inventory for the purchasers to recount, then
possibly have them sent back to production yet again to sit, yet
again.
Aside from the fact that this provides numerous chances for our
parts to get lost, broken, or even stolen; it is a terrible use of
our employees time to be running around gathering everything.
Depending on the volume of materials in question, it could take
days or weeks, and span into overtime; thus costing even more.
Therefore, our company should consider the idea of creating a

13. secondary area onsite at our Production Facility, but safely to
the line and secure. By having this secondary onsite area
available, our production staff can utilize these components
first, before additional shipments from our primary raw
inventory storage facilities. This will allow for our company to
have a steady supply of materials ready-to-use, allow for our
purchasing department to have a sharper eye on our parts, lower
the chances of losing parts, or breaking them, and save a lot of
time at the end of every month running about and collecting all
the parts to ship back to the inventory warehouses!
Of course, those in the Purchasing Department can help by
reducing the amount of our inventory based on any of our up
and coming projects; by giving our suppliers advance notice
that we can request purchase orders on a per-weekly basis,
rather than a per-monthly basis.
There is even the possibility that we can create an On-Demand
purchasing system with several dealers in the event that one
does not have the ready and available materials as well. A
system can be easily implemented whereas our supplier can be
ready to ship at a moment’s notice any raw materials required in
volume, or small allotments, etc...
The simple fact is, if we maintain a large inventory, it becomes
cost prohibitive to us in terms of maintaining it on a property,
the possibility that it could be damaged in some way, protecting
it, and of course there is the notion of depreciation as well. All
of these aspects suggest that there are additional weaknesses
within the purchasing process that must be addressed.
We should look to expand our communication and warmness
with our supply partners; looking for long-term commitments
and relationships with them instead of always consistently
going with the lowest bidders. Channel Partners and Strategic
Partnerships are always more beneficial than just grabbing the
best dollar value. Such attitudes, which are prevalent in
manufacturing businesses only work for the short-term, whereas
long-term strategy and profitability work far better with long-
term partnering based on mutual respect and trust. As an

14. additional note, it is important to keep in mind that
occasionally, some less-than-scrupulous suppliers will manage
those lower prices by cutting corners on the quality of their
materials, or having bad or even non-existent customer services.
Also, I have noted that there are some potential problems if we
remain with our present system. As previously mentioned, if we
shift around our company assets (which are the raw materials
and parts), there’s an increased chance that they can be
damaged, lost, or stolen; which will lead to an lower production
amount on a per-monthly basis. Also, by not implementing my
recommended steps, I fear that continuing in our current means
of purchasing will cause inaccurate financial accounting,
inaccurate record keeping of materials-on-hard, and bad record
keeping.
What we need to do as a company is create for ourselves a
Knowledgebase, or a Database that is replete with a modified
Dewey Decimal System for record keeping of production, costs,
materials-on-hand, and updated daily. By implementing this
system we will have a real-time ability to access our on-hand
supplies, costs, and be able to accurately track all of our
materials and whether we will require additional purchases for
inventory.
In addition to this, to minimalize the risk of theft, a security
system such as ADT or Wells Fargo, could be dealt with to set
up and install alarm systems and Closed Circuit Cameras. Or,
these could be utilized in tandem with onsite security from
either within our own company (a new group), or through hired
contractors who specialize in loss prevention.
A4. Competition Bikes: Compliance
Firstly, we are a open and publically traded Chapter S
corporation. Therefore, regular audits must be conducted to
ensure stockholders that the company is compliant in their
accurate reporting of their financial statements (Horngren,
2008, p. 380).
During our last report on the annual findings of the audit, it was
made known that there were a few notable errors potentially

15. within our Internal Controls at the company which possibly
could damage the accuracy of our fiscal reporting that was
published. Unfortunately, this can be a serious issue for our
shareholders and to any future investor. Although it could be
argued that Competition Bikes, Inc., has not and did not
intentionally submit false claims or fiscal information; it can
and would at the very least, point to a gross incompetence in
our reporting. Furthermore, there are no signals that our
company utilized any 3rd party or independent financial
auditors so as to verify the accuracy of our numbers for the
publications. Where is our transparency? Regrettably, this is
going to be considered a violation of the Sarbanes-Oxley Act.
Violations of the Sarbanes-Oxley Act are dealt with severely
through time-consuming investigations, and hefty fines; both of
which will shatter shareholder and investor confidence and have
a negative effect on our financial stability. In essence, if we are
not able or willing to regularly allow for independent auditing
of our company, we will be in direct violation of SOX.
Furthermore, if we have submitted or do submit a fiscal report
with erroneous statements, that mar our accuracy, we are again
looking at a violation.
In order for us to avoid the almost-guaranteed debacle that is
certain to prove a fiscal nightmare of biblical proportions, our
company must move swiftly to resolve the problem. First: Risk
Assessment. We must hire a 3rd party company to audit us and
make sure that their non-biased findings are the basis to ensure
our compliance with the Sarbanes-Oxley Act. It is imperative
in the strongest possible terms that we are audited by
independent auditors to confirm correctness, accuracy, and
transparency. Doing this will put many fears to rest, especially
those of our shareholders, and investors. Second, we are going
to need to put a firm ICP (Internal Control Program) in position
that can accurately monitor the requisition of materials,
accounting, review, sales, and production. It will further keep
our company within the good graces of the marketplace, and so
long as we remain committed to the proper transparency with

16. the Sarbanes-Oxley Act; we will remain a growth company.
TEMPLATE
JET Task 1
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References
Horngren, C., & Harrison, W. (2008) Accounting 8th Edition.
Prentice Hall
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