Kathmandu University School of Management

Dirt Bikes Running Case

Assignment 2

Submitted By – Grishma Shakya

Roll Number – 19329

MBA Term III

Submitted To – Asst. Prof. Sanjay Pudasaini

Faculty of Information Systems Management

Date – September 11, 2019

 1. Create graphs showing sales history from 2010 to 2014 and its domestic versus

international sales from 2010 to 2014.

Enduro 250 Enduro 550 Moto 300 Moto 450

4078
3759

3647
3290
2832

2627
2615
2454

2312
2291

2195
1932
1755

1663
1201

823
773
661
598
463

2010 2011 2012 2013 2014

Figure 1: Product-Wise Sales History

The bar chart in Figure 1 shows the product wise sales history of Dirt Bikes from

2010 to 2014. For all five years, Enduro 550 is the most sold dirt bike whereas Moto 450 is

the least sold. It is observed that the units sold of Moto 300 and 450 have been gradually

rising as the year progresses. For Enduro 250 and Enduro 550, units sold have increased till

2013 but declined in 2014.

9778
9165 9292

7483
6251

2010 2011 2012 2013 2014

Figure 2: Total Sales of Dirt Bikes

 The total units sold of Dirt Bikes have also shown gradual increases from 2010 to

2013 i.e. 6251 units in 2010 and 9778 units in 2013. However, the volume of sales has

declined in 2014 to 9292 which is a drop of approximately 5% compared to 2013.

International Sales Domestic Sales

91.6% 91.4% 90.1% 90.9% 91.8%

8.4% 8.6% 9.9% 9.1% 8.2%

2010 2011 2012 2013 2014

Figure 3: Domestic vs. International Sales

The proportion of domestic sales and international sales for Dirt Bikes has remained

steady for all years from 2010 to 2014. While domestic sales have averaged around 91.20%,

international sales have maintained an average of 8.80%. Thus, domestic sale has exceeded

international sales in all the years.

2. Use the spreadsheet software to calculate the gross and net margins in Dirt

Bikes’s income statements from 2012 to 2014. You can also create graphs

showing trends in selected pieces of Dirt Bikes’s income statement and balance

sheet data if you wish.

Table 1: Gross and Net Margin Computation

2012 2013 2014

Net sales 60,144 64,063 61,529
Gross profit/(loss) 14,309 20,908 20,457
Gross margin 23.8% 32.6% 33.2%
Net income/(loss) (1,444) 7,310 9,247
 Net margin -2.40% 11.41% 15.03%

14000
12782
11778
12000

10000

8000

6000
4522
4000

2000

0
2012 2013 2014

Figure 4: Trend in Operating Profit

66,000
65,077
65,000

64,000

63,000 62,527
62,000

61,000

60,000
59,442
59,000

58,000

57,000

56,000
2012 2013 2014

Figure 5: Trend in Total Assets

 3. What are Dirt Bikes’s best- and worst-performing products? What is the

proportion of domestic to international sales? Have international sales grown

relative to domestic sales?

As shown in Figure 4, Enduro 550 is the best-performing product of Dirt Bikes with

average 5-year sales units amounting to 42% of the total sales units, followed by Moto 300

with 27% of sales and Enduro 250 with 23% of sales. The worst-performing product for Dirt

Bikes is Moto 450 with only 7.87% of contribution to the total sales units.

Moto
450 Enduro
8% 250
23%

Moto
300
27%

Enduro
550
42%

Figure 6: Product-Wise Average Contribution to Total Sales Unit

4500
4078
4000 3759 3647
3500 3290
2832
3000
2615 2627
2454
2500 2291 2312 2195
1932
1755
2000 1663
1500
1201
1000 773 823
598 661
463
500

0
2010 2011 2012 2013 2014

Enduro 250 Enduro 550 Moto 300 Moto 450

Figure 7: Product-Wise Sales Trend

Table 2: Growth Trend of Domestic vs International Sales

Growth as compared to previous year 2011 2012 2013 2014

Growth in Domestic Sales 20% 21% 8% -4%
Growth in International Sales 21% 42% -2% -14%
While growth in both domestic and international sales have decreased in 2013 and

2014, international sales haven’t not shown remarkable growth as compared to the domestic

sales, except for 2012 where growth in international sales is double the growth in domestic

sales. The trend, as shown by Table 2, is such that international sales has grown whenever

domestic sales has growth. In 2011 and 2012, domestic sales have shown an upward trend

and so have international sales. Similarly, in 2013 and 2014, international sales have declined

when domestic sales have also declined.

4. Are sales (revenues) growing steadily, and, if so, at what rate? What is the cost of

goods sold compared to revenues? Is it increasing or decreasing? Are the firm’s

 gross and net margins increasing or decreasing? Are the firm’s operating

expenses increasing or decreasing? Is the firm heavily in debt? Does it have

assets to pay for expenses and to finance the development of new products and

information systems?

i. Sales Revenues

Sales revenues have not shown a steady growth. The sales revenues have grown by

4% in 2013 but dropped by 6% in 2014. The figure below shows the trend in sales revenues

for Dirt Bikes.

65,000
64,063
64,000

63,000

62,000
61,529

61,000
60,144
60,000

59,000

58,000
2012 2013 2014

Figure 8: Yearly Sales Revenues

ii. Cost of Goods Sold

Table 3: Cost of Goods Sold

2012 2013 2014

Net sales (in thousands) 61,529 64,063 60,144
Cost of goods sold (in thousands) 41,072 43,155 45,835
Cost of goods sold as a percentage of sales 67% 67% 76%
The cost of goods sold (in amount) has steadily increased over the three years.

However, as a percentage of sales, cost of goods sold remained stable at 67% for 2012 and

2013 but, increased by 9% to reach 76% in 2014.

iii. Gross and Net Margins

 40%
33.2%
35% 32.6%
30%
25% 23.8%
20%
15.03%
15% 11.41%
10%
5%
0% -2.40%
2012
-5% 2013 2014

Gross margin Net margin

Figure 9: Trend in Gross and Net Margins

Both gross margins and net margins have shown decreasing trends for Dirt Bikes.

There is a dramatic decline in both the margins in 2014, particularly. The decline in gross

margin could be explained by the fact that cost of goods sold have increased despite the

decline in sales, leading to decline in gross profits. Net margin is negative in 2014 ( -2.40%)

which can be associated with declining sales and increasing expenses.

iv. Operating Expenses

12000
9,787
10000 9,130
7,675
8000

6000

4000

2000

0
2012 2013 2014

Figure 10: Yearly Operating Expenses

Total operating expenses have also shown increasing trend from 2012 to 2014. In

2013, operating expenses increased by 18.96% whereas in 2014, it increased at a decreasing

rate i.e. 7.20%.

v. Debt Level
Table 4: Debt-to-Equity Ratio

2012 2013 2014

Long-term debt 8,890 9,338 9,772
Debt-to-Equity Ratio 25.9% 26.6% 27.5%
Dirt Bikes doesn’t seem to have excessive debt level. Though the debt level is rising,

debt-to-equity ratio has remained below 30% for all three years.

vi. Asset Level

Table 5: Asset Levels

2012 2013 2014

Current Ratio 3.66 3.46 3.28
Quick Ratio 1.22 1.12 1.01
Total assets 59,442 62,527 65,077
Total current liabilities 16,246 18,076 19,820
Based on the current ratio and quick ratio, Dirt Bikes has enough current assets to

meet its current obligations. Though current and quick ratios have shown declining trends,

current ratio is above 3 and quick ratio is above 1. Similarly, since the currents assets exceed

the current liabilities, it seems to have enough working capital to finance the development of

new products and information systems as well.