Case Study

Comic book sales have hit record highs due to the volume of comic book-based movies achieving great success. With each new movie and character announcement, collectors and investors feed off the speculation. Many collectors send their books for grading, certification, and encapsulation to protect their investments. The Exceptional Service Grading Company provides those services and wants to expand to assessing other publication formats, such as certifying large magazines and movie posters.

What is the company's financial position? Please refer to theincome statement and balance sheetfor the Exceptional Service Grading Company available here. Using the learning resources provided in the Reading Assignment, perform a financial ratio analysis of the company using the following ratios:

• Gross profit margin
• Current ratio
• Debt ratio

Locate two other ratios to calculate. Define them and explain their purpose and how they add value to your analysis.

Select significant lines from the financial statements and provide an observation of their trends. For example, if the account is increasing or decreasing in value, what would that indicate?

• Draw some conclusions based on your observations. For example:
• Is there any viability for a new project?
• Why do you think the assets of the company went up from 2017 to 2018?
• What implications does this have?
• What follow-up questions do you have to ask the company's management?

Superior papers will:

• Provide correct values for calculations.
• Explain your approach to the problem.
• Support your approach with references, and execute your approach.
• Provide an answer to the case study questions with a recommendation.

Balance Sheet items 2018 2017 CURRENT ASSETS Cash 456,500 222,400 Cash increase - due to no dividends paid in 2018 Receivables 3,936,400 3,320,000 Inventory 89,800 100,200 Other assets 1,169,500 934.300 Total current assets 5,652,200 4,576,900 Current ratio 2017: Current ratio 2018: LONG TERM ASSETS Note Receivable 380.600 280,700 Some additional debt acquired in 2018 Equipment (net of depreciation) 975,000 1,017,800 Total long term assets 1,355,600 1,298,500 TOTAL ASSETS 7.007,800 5,875,400 LIABILITIES AND STOCKHOLDERS' EQUITY Debt ratio 2017: Debt ratio 2018: CURRENT LIABILITIES Accounts payable 2,783,100 2,805, 700 Note payable (current maturities) 277,550 272,550 Other accrued liabilities 265.300 214.600 Total current liabilities 3,325,950 3,292,850 LONG TERM LIABILITIES Notes payable (long term) 454,800 454,800 Long term accrued liabilities 389,550 320.250 Total long term liabilities 344.350 775,050 TOTAL LIABILITIES 4,170.300 4,067,900 STOCKHOLDERS' EQUITY Common stock 450,000 450,000 Retained Earnings 2,387,500 1,357,500 Total stockholders equity 2,837,500 1,807,500 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,007,800 5,875,400Photos - Wk1-1.png Photos - Wk1-2.png 0 X See all photos - Add to O . . . See all photos - Add to O . . . Balance Sheet items 2018 2017 CURRENT ASSETS Cash 456,500 222,400 Cash increase - due to no dividends paid in 2018 Receivables 3,936,400 3,320,000 Inventory 89,800 100,200 Other assets 1,169,500 34,300 Income Statement items 2018 2017 Answers/Comments Total current assets 5,652,200 4,576,900 Current ratio 2017: Service Contract Revenues 9,200,000 6,595,400 Increase in contracts Current ratio 2018: LONG TERM ASSETS Note Receivable 380,600 280,700 Some additional debt acquired in 2018 Service Contract Costs (6,503,100) (4,957,800) Equipment (net of depreciation) 975,000 1,017,800 Gross Profit 2,696,900 1,637,600 Gross profit margin 2017: Total long term assets 1,355,600 1,298,500 Gross profit margin 2018: General and Administrative Expenses (896,000) (756,000) TOTAL ASSETS 7,007,800 5,875,400 LIABILITIES AND Operating Income 1,800,900 881,600 Increase in profit - see above comment STOCKHOLDERS' EQUITY Debt ratio 2017: Debt ratio 2018: Gain on sale of equipment 59,900 7,700 CURRENT LIABILITIES Accounts payable 2,783, 100 2,805,700 Interest expense (69,500) (70,800) Note payable (current maturities) 277,550 272,550 Other accrued liabilities 265,300 214,600 Other expense (9,600) (63,100) Total current liabilities 3,325,950 3,292,850 Income before taxes 1,781,700 755,400 LONG TERM LIABILITIES 454,800 (451,700) Notes payable (long term) 454,800 Taxes (300,900) Long term accrued liabilities 389,550 320,250 Net Income 1,330,000 454,500 Increase in net income from 2017-2018 Total long term liabilities 844,350 775,050 Retained Earnings, Beginning Balance 1,057,500 1,053,000 TOTAL LIABILITIES 4,170,300 4,067,900 2,387,500 1,507,500 Less: Dividends paid 0 (150,000) No dividend paid in 2018 STOCKHOLDERS' EQUITY Common stock 450,000 450,000 Retained Earnings, Ending Balance 2,387,500 1,357,500 Retained Earnings 2,387,500 1,357,500 Total stockholders' equity 2,837,500 1,807,500 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,007,800 5,875,400 Type here to search O 11:19 AM 4/11/2020 E