For the current year (2018): Sales ($): $50,459,200 Sales (Units): 106,572 Costs: $30,532,264 Profit: $13,948,855 Shareholder Value: $120.65 Earnings per Share: $12.83 X-treme Bikes used a high quantity low price marketing strategy.
Current Ratio Analysis: In the year 2014, X-Treme bikes firm’s solvency was 8.6. In the year 2015, our firm’s solvency was 6.8 In the year 2016, solvency dropped slightly to 5.9. In the year 2017, solvency had raised to 7.7. In the year 2018, the final year of simulation, our firm’s solvency was 7.3. Upon observation of the 5 years, our firm’s solvency is consistently greater than 2. To conclude, our assets should not have any problems covering our liabilities.
Debt-to-Owner’s Equity Ratio: X-Treme Bikes’ D/E for the year 2014 was 0.12. In the year 2015, D/E was at 0.08. In the year 2016, D/E was 0.04. D/E for the year of 2017 was 0.03. In the final year of 2018, D/E was 0.02. The average D/E for the final year was 0.18. our firm’s ratio is low, so there is a very low risk of investing in our company.
Return On Equity: Our firm’s ROE for the year 2014 was 0.27, or 27%. In the year 2015, our firm’s ROE was 0.32, or 32%. ROE for the year 2016 was 0.42, or 42%. In the year 2017, ROE dropped back down to 0.32, or 32%. In the final year of 2018, ROE was 0.33, or 33%. We can see that for every share of equity, shareholders will earn 33% of the firm’s net income judging by the final year of simulation.
Return On Sales: Our firm’s ROS ratio for the year 2014 starting out was 0.21, translating to a Return on Shares percentage of 21% In the year 2015, our firm’s ROS was 0.201, rounding off to 20%. In the year 2016, ROS was 0.272, or 27%. In the year 2017, the firm’s ROS was 0.2836, or 28% In the final year of 2018, our firm’s ROS was 0.2764, or 28%. In the final year of 2018, average ROS in the industry was 0.24, or 24%, putting us above the average in the final year of simulation, which is another way of showing that our company is very profitable. We can see that our ROS is above average in all of the other years as well. This shows that our company is very consistent.
Earnings Per Share: In the year 2014, X-Treme bikes’ Earning per share were $2.29. In the year 2015 our firm’s EPS was slightly higher, at $3.91 per share. In the year 2016, our firm’s EPS raised greatly to $9.23 per share. In the year 2017, EPS had risen to $10.98, approximately $11.00 per share. In the final year of 2018, EPS for our firm had risen to $12.83 per share. In each year, our EPS were higher than the average EPS of our world. From the years 2016 to 2018 in particular, our EPS were more than twice the average EPS for our world. This indicates that our company is consistently very profitable.
To conclude, upon observation of our firm’s overall financial analysis, our profits have increased year by year, and our Shareholder Value is leading in our world at $120.65. Our firm is very solvent, with our short-solvency rising every year for the most-part, but was much higher than the even point of 2.0. Our long-term solvency is also very good, decreasing year by year. This is a positive for our firm. All of our profitability ratios were higher than the average of each respective ratio, being another positive for X-Treme bikes.
For all three types of bike, there is a negative correlation between price and sales volume. Factors like advertising, public relations, quality have a positive correlation with sales volume.
For the road bike market the product dimension sensitivities, the price is typically low, the advertising is also low, the PR is high, the quality is high, the distribution is low. The delivery time is low and the product specs is high. For our marketing on our road bike we spent $3,0000,00, all of our money on magazines because we calculated that magazines would bring us the max amount of customers by multiplying the media viewing habits by the advertising and PR media reach. Our price was $2300 which is the second highest, $20 lower than the highest.
For the mountain bike market sensitivities, the price is medium, advertising is high, PR is low, quality is medium, distribution is medium, delivery time is medium and product specs is medium. Our Strategy was to sell for low price but at a large quantity. Advertising is the only factor that has high sensitivity, therefore we spent $1,000,000 for each year.
For the youth bike market sensitivities, price is high, advertising is high, PR is low, quality is low, distribution is medium, delivery time is medium and product specs is low. Price is very sensitive in youth bike market so our strategy is price low and quantity high. We spent $1,000,000 on TV because TV is the most efficient way of advertising youth bikes. We decreased our price year by year because we thought that the other companies would do the same and we wanted to make sure we were at the lowest price, so that we could keep our share of the market.
Our retailer margins are 20% for each channel and we spent %1,000,000 brand advertising to get customers to be thinking about our bikes and request them, although the channels don’t want our bikes the customers do so, so the shops are forced to buy our bikes.
For our cost of goods sold in percentage in 2015 it was 39.%, in 2016 it was 40%, in 2017 it was 41% and in 2018 it was 46%.we have the second lowest cost of goods sold and below the each year’s average. For the total capacity in 2015 our total capacity was 30,000, in 2016 it was 34,000, in 2017 it was 39,000 and in 2018 it was 48,000. For each year we have the highest total capacity, far higher than average. For our efficiency index in 2015 it was 74% our wastage was 24% and our idle time was 2%, in 2016 our efficiency index was 82%, our wastage was 18% and no idle time, in 2017 our efficiency was 86%, our wastage was 14%, no idle time, in 2018 our efficiency was 87%, our wastage was 13%, no idle time. From 2015 to 2018 our factory didn’t have any Idle time left, that indicate the market demand for our 3 kinds of bicycles is farm more great than the bicycles we produced.
In 2015 our quality index was.7 which was.05 lower than the average, in 2016 our quality index was.77 which was.03 higher than the average, in 2017 our index was.87 which was.1 higher than the average and in 2018 our index was.92 which was.14 higher than the average. Our final product improvement spends $10,900,000 and the average spending for product improvement was $3,386,621. Our company did 8 product improvements which was 5 higher than the average of 3.
Key Cost Drivers Three factors that increase our costs are total capacity increase, efficiency increase and quality. The larger total capacity we have, the more money we need to spend on quality. There is a positive correlation between these two factors. One factor that decreases our costs is product improvement. We can decrease the cost for each unit by develop the saving cost style bike.
Our firm proved to be the most profitable in the final year of the competition. In 2018, our net income was $13,948,855, which put our firm’s income at more than double what the industry average for our world was, at $5,867,412.00. Our firm’s shareholder value in the final year was $120.65. This was the highest in our world. X-Treme bikes’ overall brand awareness was significantly higher all of the other firms’ brand awareness. Our brand awareness being around 42.5% and brand awareness of all others at around 26%.
The amount that our firm increased in net income decreased from the first year to the last, from 2014-2015 we increased by 70%, from 2015 to 2016 we increased 146%, from 2016-2017 we increased 24% and from 2016-2017 we only increased 17%, this decline could be considered a weakness for our firm. Our shareholder value is too high for our firm to be able to repurchase our equities. We can decrease our number of shares, but it will cost us a lot of money because of how high our shareholder value is. For our distribution in youth bike market we were below the average in our world.
As of 2018, our firm has a very large ending cash balance, giving us the opportunity to use this cash to benefit us by purchasing more dividends, increasing our shareholder value every year. We can spend more money on youth bikes advertising to create more awareness for our product. We can produce more bikes to fit the market demand.
Michaels Bicycles issued dividends earlier in the competition than our firm, in the year 2016, to be specific. The result is that Michaels Bicycles’ shareholder value increases at a quicker rate than that of X-Treme bikes.