$$ 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 the income statement and balance sheet for 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?

Logically support your observations. Explain the limitations when using ratio analysis of financial statements.

In this paper, please include the following:

Provide the correct values for the 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 $20182017$

CURRENT ASSETS

Cash $456,500222,400$

Receivables $3,936,4003,320,000$

Inventory $89,800100,200$

Other assets $1,169,500934,300$

Total current assets $5,652,2004,576,900$ Current ratio $2017$:

Current ratio $2018$:

LONG TERM ASSETS

Note Receivable $380,600280,700$ Some additional debt acquired in $2018$

Equipment $($net of depreciation$)975,0001,017,800$

Total long term assets $1,355,6001,298,500$

TOTAL ASSETS $7,007,8005,875,400$

LIABILITIES AND STOCKHOLDERS' EQUITY Debt ratio $2017$:

Debt ratio $2018$:

CURRENT LIABILITIES

Accounts payable $2,783,1002,805,700$

Note payable $($current maturities$)277,550272,550$

Other accrued liabilities $265,300214,600$

Total current liabilities $3,325,9503,292,850$

LONG TERM LIABILITIES

Notes payable $($long term$)454,800454,800$

Long term accrued liabilities $389,550320,250$

Total long term liabilities $844,350775,050$

TOTAL LIABILITIES $4,170,3004,067,900$

STOCKHOLDERS' EQUITY

Common stock $450,000450,000$

Retained Earnings $2,387,5001,357,500$

Total stockholders' equity $2,837,5001,807,500$

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $7,007,8005,875,400$

$.............................$

Income Statement items $20182017$ Answers$/$Comments

Service Contract Revenues $9,200,0006,595,400$ Increase in contracts

Service Contract Costs $-6,503,100-4,957,800$

Gross Profit $2,696,9001,637,600$ Gross profit margin $2017$:

Gross profit margin $2018$:

General and Administrative Expenses $-896,000-756,000$

Operating Income $1,800,900881,600$ Increase in profit $-$ see above comment

Gain on sale of equipment $59,9007,700$

Interest expense $-69,500-70,800$

Other expense $-9,600-63,100$

Income before taxes $1,781,700755,400$

Taxes $-451,700-300,900$

Net Income $1,330,000454,500$ Increase in net income from $2017-2018$

Retained Earnings, Beginning Balance $1,357,5001,053,000$

$2,687,5001,507,500$

Less: Dividends paid $-300,000-150,000$

Retained Earnings, Ending Balance $2,387,5001,357,500$