The Trend of Radioshack Corporations Net Sales - Research Paper Example

?BD 8 Trend analysis of RadioShack Corporation’s net sales, gross profit, operating income, and net income Trend analysis offers a basis for time series review of factors such as financial performance indicators. Net sales, gross income, operating income, and net income are the major items of RadioShack Corporation’s income statement and trend analysis can be conducted for developing knowledge over each item across the three years, year ended 2008, 2009, and 2010 respectively. The following table summarizes results of trend indices for each of the items (Brenchner, 2011). Trend analysis: 2010 2009 2008 Net sales 106% 101% 100% Cost of sales 107% 101% 100% Gross profit (Net sales – Cost of sales) 104.58% 102.08% 100% Gross profit rate 105% 102% 100% Operating income 116% 115% 100% Net income (net loss) 109% 108% 100% The income statement items indicate improvements in the organization’s operational efficiency. Slight improvements were realized from the year ended 2008 to the year ended 2009 as compared to the percentage improvements in values from the year ended 2009 to the year ended 2010 that were greater. Net sales and cost of sales increased by one percent from the year ended 2008 and by five percent and six percent respectively from the year ended 2009 to the year ended 2010. The change in gross profit from 2008 to 2009 was therefore a result of increased number of sold units because the changes in sales and cost of the sales were the same. Cost of sales however increased by a larger margin than change in net sales, in the following period, and this was a setback to trend in gross profit. It could be attributed to production inefficiencies and other sales factors (Delaney and Whittington, 2010). Even though operating income had an increasing trend over the three-year period, the pattern was slightly different from the trend in net sales and cost of sales. The percentage change in operating income was minimal from the year ended 2008 to the year ended 2009 as compared to the change from the year ended 2009 and efficient operating activities in the year ended 2010, relative to the year ended 2009, is a possible factor. Average variable costs, applied in operations, were therefore lower in the year ended 2009 as compared to the year ended 2010. The trend in operating income was however symmetrical to the trend in net income to indicate a constant trend in non-operational expenses (Rich, Jones, Mowen and Haansen, 2009). The trend analysis of RadioShack Corporation from the year 2008 to the year 2010 therefore identifies increased operations that translate to increased profitability level. Average operational costs also increased in the period and was more significant in the year ended 2010, having increased at a higher rate than rate of increment in gross profit. The Corporation should therefore take care to balance its sales objectives with the involved costs of achieving the objectives in order to avoid higher sales levels that lead to losses. The company’s net income however maintained a growth trend by the year 2010 and positive prospects can be predicted (Harrison, Horngren, 2008). Updated trend analysis up to the year 2012 The corporation’s data was updated for net sales, cost of sales, gross profit, operating income and net income up to the year 2012 and trend analysis conducted. The following table shows the generated indices for the items from the year ended 2008 to the year ended 2012. Trend analysis: 2012 2011 2010 2009 2008 Net sales 100.80% 103.60% 106% 101% 100% Cost of sales 117.10% 111.50% 107% 101% 100% Gross profit (Net sales – Cost of sales) 81.20% 94.20% 104.58% 102.08% 100% Gross profit rate _ _ 105% 102% 100% Operating income -18.90% 48.10% 116% 115% 100% Net income (net loss) -73.60% 38.10% 109% 108% 100% Trend in RadioShack Corporation’s performance assumed a decreasing pattern from the year 2010 apart from cost of sales that continued to rise. Trend in net sales fell from the year ended 2010, was almost equivalent to the net sales value in the year ended 2008 and this general trend predicts further decrease in net sales value. Cost of sales however retained an increasing trend beyond the year ended 2010. I was 111.5 percent in 2011 and 117.1 percent in 2012 and this predicts a further increasing trend in future costs of sales. The different trends in net sales and cost of sales are reflective in the gross profit that has been falling at a very high rate and the unfavorable changes in net sales and cost of sales combine to cause the high declining rate of gross profit. This is because the increasing trend in cost of sales has negative effects on gross profits (Brenchner, 2011). Operating income indicates a worse trend for the corporation as the rate of decrease is higher than that for gross profits. This means that average effect of operating expenses has been negative. The assumed trend in operating income that started in the year ended 2010 can be forecasted because of consistency in its pattern. Even though its index improved from the year ended 2009 to the year ended 2010, the percentage change was smaller than realized change in the previous economic period and this indicates lost efficiency trend. Further deterioration therefore communicated worsening inefficiency in operations and its subsequent higher average variable costs that strains operating profit. A more significant strain is observable in the corporation’s net income whose trend is worse that the trend for operating income. Having increased from the year ended 2008 to the year ended 2009, net income assumed a decreasing trend that was significant till the year 2012 and can therefore be predicted in future economic periods (Wilborg, 2010). The trend in RadioShack Corporation’s financial statement from the year ended 2008 to the year ended 2012 therefore identify the organization’s decline from its peak performance in the year ended 2009. The deteriorating condition that the time series financial statements identify is caused by decline in sales and increasing trends in costs, both operational costs and administrative costs. Even though the business achieved a gross profit in the year ended 2012, it operated and a loss and its net income was worse, a condition that indicates its risks of gross loss in the near future (Brenchner, 2011). Personal opinion on the company’s outlook for the future, decision on investing on the company’s stock and rationale for the decision I believe that the company’s future is at risk because the times series trend of income statement items threatens insolvency. The general trend indicates that the company is likely to experience worse performance and eventually operate at significant level of loses in future. Operating at great loses may lead to bankruptcy and the collapse of the business. This is because the company will have to rely on its previous retained earnings that may soon be exhausted. The worsening profitability condition may also scare away investors and creditors and restrain RadioShack’s sources of cash. The trend into loses is also likely to have adverse effects on the corporation’s stock prices and its significance in the market. This was evident in the company’s share prices that declined, significantly, from the year ended 2010 to the year ended 2011. Analyst’ rating of the company’s shares after the year ended 2012 also communicated indifference in with a slight bias to opinion for disposal of shares and this mmmeans that the shares may soon lose their value. Based on these factors, poor performance and the consequence on stock price and value, I would not invest in the company’s stock (Gay, 2008). References Brenchner, R. (2011). Contemporary mathematics for business and consumers. Mason, OH: Cengage Learning. Delaney, J. and Whittington, R. (2010). Wiley CPA exam review 2011, Financial accounting and reporting. Hoboken, NJ: John Wiley & Sons. Gay, R. (2008). Effect of maroeconomic variables on stock market returns for four emerging economies: A regression model for Brazil, Russia, India, and China. Ann Arbor, MI: ProQuest. Harrison, W. and Horngren, C. (2008). Financial accounting. Upper Saddle River, NJ: Pearson Prentice Hall. Rich, J., Jones, J., Mowen, M. and Haansen, D. (2009). Cornerstone of financial accounting, reprint: Current trends. Mason, OH: Cengage Learning. Wilborg, K. (2010). Basic financial accounting. Denmark: Academica. Read More