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Financial Statement Analysis: Adventure Sports Ref: Financial Essay

Financial Statement Analysis: Adventure Sports Ref: Financial Statement Analysis - Adventure Sports

Having listened to your predictions regarding Adventure Sports' chances of success, I decided to analyze the company's financial statements so as to determine who amongst you was right.

Looking at the company's income statements, it is clear that its profitability has been improving over time. While Adventure Sports had a net income of $1,000 in 2007, the same improved to $7,000 and then to $13,000 dollars in 2008 and 2009 respectively. This essentially represents a 1200% increase in the net income figure between the year 2007 and 2009. This is largely impressive. The sales figure also improved significantly within the three years under consideration. The increase in the cost...

However, although sales increased by 46.12% between the years 2007 and 2009, cost of sales experienced a 52.86% increase within the said period. This clearly indicates that in the period under consideration, the cost of purchases and direct expenses increased by a greater percentage than that of sales. If this trend is allowed to continue, Adventure Sports risks losing a huge chunk of its sales to costs associated with purchases and direct expenses. This could have a negative impact on its ability to post impressive profits in future -- thus declining to its eventual demise in a few years time. However, if corrective steps are taken sooner than later, i.e. By finding cheaper material, the situation could be remedied and the…

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