Jet2 Task 1

6510 Words Feb 28th, 2014 27 Pages
A.1.a Horizontal analysis

Horizontal analysis is essentially an analysis on the trend of the financials of the company. It shows changes in the amounts of the amounts over a period of time. In the financial statement provided, the horizontal analysis is between years six and seven, and years seven and eight; respectively. When analyzing the income statement provided with the task, several strengths and weaknesses are very apparent. They will be broken down individually and analyzed separately. Horizontal analysis is calculated by using the formula below ("Horizontal Analysis," n.d.)

Income Statement
Revenue: Net sales between years 6 and 7 demonstrate a 33.3% increase or an increase in approximately $1.5 million.
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This is a strength that reflects the strong sales during the period analyzed. Years 7 and 8 closely correlate with the overall loss of net sales, cost of goods sold and therefor, decreased sales numbers between years 7 and 8. The gross profit respectively is -16.3% or -$266,000 when compared to year 8. This is a weakness but still represents a strength because the company still grossed or made $1,371,400 before expenses. The horizontal analysis demonstrates it as a loss or a weakness, but positive sales in whether trending in a negative way are positive results when analyzing a positive gross profit. A strong manager would investigate why sales are down and make changes to ensure growth is seen.
Operating expenses: I will not analyze every subsection, but will focus on important parts that paint a clear picture of why a gain or loss occurred in the revenue section. Advertising money spent between year 6 and 7 increased 37.5% or $8,940. While the increase in spending is a weakness, it is a strength because the company demonstrated positive growth during the same period; likely due to the advertising of new product. The only negative finding for the company during the analyzed period is the 37.5% increase in money spent to grow sales. The number seems rather large but the increase in money spent to advertise was under $10k and yielded an increase of $447k. Advertising clearly was a good invest

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