Analyzing a Fitness Company’s Financial Position

9 min readAug 25, 2024

My submission for the Onyx Data August 2024 Challenge

Introduction

In today’s data-driven world, financial performance analysis is critical for businesses looking to optimize their operations and drive growth. This article delves into the financial performance of a sporting goods manufacturer, focusing on three key business lines: Sports Inventory, Sportswear, and Nutrition & Food Supplements. Using a comprehensive dataset provided by Onyx Data as part of the DataDNA Challenge for August 2024, we will explore how these business lines perform across various financial metrics, including revenue, cost of goods sold (COGS), operating expenses (OPEX), and profitability. By analyzing this data, we aim to uncover key insights to help the company make informed strategic decisions and improve its overall financial health.

Project Objective

The primary objective of this analysis is to evaluate the financial performance of a sporting goods manufacturer by closely examining its three business lines: Sports Inventory, Sportswear, and Nutrition & Food Supplements. The analysis aims to:

Calculate Key Financial Metrics: We will calculate income statements for each business line, focusing on essential metrics such as revenue, cost of goods sold (COGS), operating expenses (OPEX), and net profit.
Assess Profit Margins: By analyzing gross and net profit margins, we aim to identify the most and least profitable segments, providing insights into where the company generates the most value and where improvements are needed.
Compare Financial Indicators: We will compare financial indicators across the business lines to understand performance trends and determine which areas are driving overall profitability and which may require strategic adjustments.
Provide Strategic Recommendations: Based on the analysis, we will offer actionable recommendations to help the company optimize its financial performance, focusing on areas such as cost management, revenue enhancement, and operational efficiency.

Dataset Overview

The dataset used in this analysis is provided as part of the Onyx Data DataDNA Challenge for August 2024. It contains detailed financial information for a sporting goods manufacturer, covering three distinct business lines: Sports Inventory, Sportswear, and Nutrition & Food Supplements. The data is organized monthly, allowing for both granular and aggregated analysis across different periods.

Key Fields in the Dataset:

Year: The specific year in which the financial data is recorded.
Month — name: The name of the month corresponding to the financial data.
Month — sequence: The sequential number of the month (e.g., January = 1, February = 2).
Date: The exact date associated with the financial data, typically the last day of the month.
Business Line: The specific segment of the business (e.g., Sports Inventory, Sportswear, Nutrition & Food Supplements).
Amount: The monetary value associated with each financial transaction, either revenue or expense.
Expense Subgroup: A more detailed categorization of expenses (e.g., Rent, Equipment, Payroll).
Revenue/Expense Group: A broad categorization of financial data into revenue or expenses.
Revenue or Expense: A label identifying whether the amount is a revenue or an expense.

Key Metrics Included:

Revenue: Monthly revenue figures for each business line, indicating the total income generated before any expenses are deducted.
Cost of Goods Sold (COGS): Detailed costs associated with producing and delivering the company’s products, which directly impact gross profit margins.
Gross Profit: Calculated as Revenue minus COGS, it represents the profit after accounting for the direct costs of production.
Operating Expenses (OPEX): Breakdown of monthly operating expenses, including payroll, marketing, rent, and other key cost drivers that affect net profit.
EBIT (Earnings Before Interest and Taxes): This metric represents the company’s profitability before deducting interest and income tax expenses. It is a key indicator of the company’s operational efficiency.
Interest and Tax: These are the expenses related to the company’s interest on debt and tax obligations, deducted after EBIT to determine the final net profit.
Net Profit: The resulting profit after all expenses, including COGS, OPEX, Interest, and Tax, have been subtracted from Revenue, providing a clear picture of the company’s overall profitability.

Key Financial Targets

The financial performance of Vital Core Fitness Industries is measured against the following key targets:

Revenue Target: €18 million
COGS Target: 45% of revenue
Gross Profit Target: 70% of revenue
OPEX Target: 45% of revenue
EBIT Target: 25% of revenue
Net Profit Target: 30% of revenue

Data Segmentation:

The dataset is segmented by Business Line and Month, enabling a thorough comparison of performance across different segments and periods. This segmentation allows us to identify trends, seasonal patterns, and variations in profitability between the business lines.

Analysis and Findings

Revenue Distribution Analysis

The revenue distribution across the three business lines reveals that Sportswear consistently leads in revenue generation, particularly in the first and fourth quarters. January and December were standout months, contributing significantly to the overall revenue. Sports Inventory displayed notable peaks in June and December, reflecting strong seasonal demand. In contrast, Nutrition & Food Supplements experienced more volatility, with lower revenues during the mid-year months, highlighting potential challenges in maintaining consistent demand.

Expense Analysis

Operating expenses (OPEX) varied significantly across the business lines. Sportswear managed to maintain relatively stable expenses throughout the year, contributing to its strong profitability. Sports Inventory saw fluctuations in expenses, with higher costs in months of peak sales like June and December. Nutrition & Food Supplements faced the highest relative expenses, particularly in the mid-year period, which impacted its profitability. The data suggests a need for tighter cost controls, especially in the Nutrition & Food Supplements segment, to improve overall financial health.

Profitability Insights

Sportswear consistently maintained the highest gross profit margins, averaging 70.33%, with a net profit margin of 40.20%, solidifying its position as the most profitable segment. Sports Inventory followed, with a gross profit margin of 58.76% and a net profit margin of 25.71%. Despite its potential, Nutrition & Food Supplements struggled with profitability, posting a gross profit margin of 44.82% but a negative net profit margin of -38.67%, indicating significant cost and revenue challenges.

Trend Analysis

The trend analysis highlights the dynamic relationship between revenue and expenses across the year. Sportswear managed to keep expenses in check, leading to consistent profitability even during periods of lower revenue. Sports Inventory exhibited a direct correlation between revenue spikes and increased expenses, particularly in June and December. Nutrition & Food Supplements faced the most significant challenges, with expenses often outpacing revenue, particularly in the middle of the year, leading to a negative net profit margin. These trends suggest a need for more aggressive expense management and strategic planning in the Nutrition & Food Supplements line.

Income Statement

The Income Statement analysis reveals that January and December were the most profitable months, particularly for Sportswear, which benefited from high seasonal demand. March and April were challenging, with dips in revenue and steady costs leading to lower profitability across all business lines. June was a pivotal month, especially for Sports Inventory, where a significant revenue increase boosted overall financial performance. Quarterly, Q1 was strong due to January’s performance, Q2 was mixed with a recovery in June, and Q4 ended the year on a high note, driven by December’s contributions. This analysis underscores the importance of capitalizing on strong months and addressing the factors behind weaker performances.

Strategic Recommendations

1. Enhance Cost Management:

Focus on High COGS: To stay within the 45% target, the company should explore strategies to reduce production costs, as COGS is the largest expense category. This includes negotiating better terms with suppliers, optimizing labor costs, and improving production efficiency.
Optimize Labor and Payroll: Given the significant expenses in labor and payroll, the company should consider evaluating staffing levels and exploring automation or other efficiency improvements to reduce these costs without compromising productivity.

2. Optimize Underperforming Segments:

Nutrition and Food Supplements: This segment is currently underperforming with a negative profit margin. The company should conduct a thorough review of this business line, including pricing strategies, cost management, and market positioning, to turn it around and contribute positively to overall profitability.

3. Capitalize on Seasonal Revenue Peaks:

Maximize High-Revenue Months: The company experiences strong revenue during holiday seasons — Winter and Summer. To maximize profitability during these periods, the company should ensure sufficient inventory, ramp up marketing efforts, and consider introducing promotions to drive even higher sales.
Address Low-Revenue Months: For months where revenue dips or profit margins are tighter, the company should explore targeted promotions, cost-saving initiatives, and strategies to stimulate demand.

4. Diversify Revenue Sources:

Reduce Reliance on Sports Equipment: With Sports Equipment contributing nearly half of the company’s total revenue, it’s important to diversify revenue sources to mitigate risk. Expanding the product range within Sportswear or improving the performance of Nutrition and Food Supplements could help balance the revenue distribution.

5. Improve Profit Margins:

Strategic Pricing and Cost Control: To boost profit margins across all business lines, the company should regularly review its pricing strategies to ensure they align with market conditions and customer willingness to pay. Additionally, maintaining strict control over operational costs will be essential in preserving profitability.

6. Invest in Strategic Growth Initiatives:

Expand High-Performing Segments: The company should invest in expanding the high-performing Sportswear segment and turn around the underperforming Nutrition and Food Supplements line through product innovation and targeted marketing.
Turn Around Underperforming Lines: Allocate resources to revitalize the Nutrition and Food Supplements line, possibly through product innovation, rebranding, or targeted marketing campaigns. Improving the performance of this segment can balance the company’s overall portfolio and reduce dependency on a single revenue source.

Conclusion

This financial analysis has highlighted the strengths and challenges across the company’s three business lines: Sports Inventory, Sportswear, and Nutrition & Food Supplements. Sportswear consistently outperformed with strong revenue and profitability, while Sports Inventory showed promising potential during peak seasons. However, the Nutrition & Food Supplements segment struggled with high costs and inconsistent revenue, leading to a negative profit margin.

To drive sustainable growth, the company must focus on improving cost management, particularly in the underperforming Nutrition & Food Supplements line, while leveraging the strong performance of the Sportswear segment. By diversifying its revenue sources and strategically investing in growth opportunities, the company can achieve a more balanced and resilient financial profile, ensuring long-term profitability and success.

Explore the full interactive dashboard here, where you can dive deeper into the data and visualize the financial performance of each business line.

Call to Action

As we’ve explored the financial performance of this sporting goods manufacturer, it’s clear that data-driven decision-making is crucial for optimizing operations and driving growth. If you’re a business leader, financial analyst, or data enthusiast, I encourage you to take a closer look at your own financial data. Identify your strengths, uncover areas for improvement, and implement strategies that will enhance your company’s profitability and resilience.

If you found this analysis insightful, consider sharing it with your network to spread the knowledge. If you’re interested in applying similar techniques to your own data, or if you have any questions about the methods used in this analysis, feel free to reach out or leave a comment.

Thank you!