Submit a written paper which is 2-3 pages in length, exclusive of the reference page. Papers should be double spaced in Times New Roman font
Submit a written paper which is 2-3 pages in length, exclusive of the reference page. Papers should be double spaced in Times New Roman font which is no greater than 12 points in size. The paper should cite at least one source independent of the textbook.
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 companys 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 companys management?
Balance Sheet items 2018 2017 CURRENT ASSETS Cash Receivables Inventory Other assets 456,500 3,936,400 89.800 1,169,500 222,400 Cash increase - due to no dividends paid in 2018 3,320,000 100,200 934,300 Total current assets 5.652,200 4,576,900 Current ratio 2017: Current ratio 2018: LONG TERM ASSETS Note Receivable Equipment (net of depreciation) 380,600 975.000 280,700 Some additional debt acquired in 2018 1,017,800 1.298,500 1,355,600 Total long term assets TOTAL ASSETS 7,007,800 5,875,400 LIABILITIES AND STOCKHOLDERS' EQUITY Debt ratio 2017: Debt ratio 2018: CURRENT LIABILITIES Accounts payable Note payable (current maturities) Other accrued liabilities 2,783,100 277.550 265.300 2,805,700 272,550 214.600 3.292.850 3,325,950 Total current liabilities LONG TERM LIABILITIES Notes payable (long term) 454,800 454,800 389.550 320,250 Long term accrued liabilities 844,350 775.050 Total long term liabilities TOTAL LIABILITIES 4,067,900 4,170,300 STOCKHOLDERS' EQUITY Common stock Retained Earnings Total stockholders' equity 450,000 2,387,500 2,837,500 450,000 1,357,500 1,807,500 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,007,800 5,875,400 Income Statement items 2018 2017 Answers/Comments Service Contract Revenues 9,200,000 6,595,400 Increase in contracts Service Contract Costs (6,503,100) (4.957.800) Gross Profit 2,696,900 1,637,600 Gross profit margin 2017: Gross profit margin 2018: (756,000) General and Administrative Expenses (896,000) Operating Income 1.800.900 881,600 Increase in profit - see above comment Gain on sale of equipment 59,900 7,700 Interest expense (69,500) (70,800) Other expense (9,600) (63,100) Income before taxes 1,781,700 755,400 Taxes (451,700) (300,900) Net Income 1,330,000 454,500 Increase in net income from 2017-2018 Retained Earnings, Beginning Balance 1,057,500 2,387,500 1,053,000 1,507,500 (150,000) No dividend paid in 2018 Less: Dividends paid Retained Earnings, Ending Balance 2,387,500 1,357,500 Balance Sheet items 2018 2017 CURRENT ASSETS Cash Receivables Inventory Other assets 456,500 3,936,400 89.800 1,169,500 222,400 Cash increase - due to no dividends paid in 2018 3,320,000 100,200 934,300 Total current assets 5.652,200 4,576,900 Current ratio 2017: Current ratio 2018: LONG TERM ASSETS Note Receivable Equipment (net of depreciation) 380,600 975.000 280,700 Some additional debt acquired in 2018 1,017,800 1.298,500 1,355,600 Total long term assets TOTAL ASSETS 7,007,800 5,875,400 LIABILITIES AND STOCKHOLDERS' EQUITY Debt ratio 2017: Debt ratio 2018: CURRENT LIABILITIES Accounts payable Note payable (current maturities) Other accrued liabilities 2,783,100 277.550 265.300 2,805,700 272,550 214.600 3.292.850 3,325,950 Total current liabilities LONG TERM LIABILITIES Notes payable (long term) 454,800 454,800 389.550 320,250 Long term accrued liabilities 844,350 775.050 Total long term liabilities TOTAL LIABILITIES 4,067,900 4,170,300 STOCKHOLDERS' EQUITY Common stock Retained Earnings Total stockholders' equity 450,000 2,387,500 2,837,500 450,000 1,357,500 1,807,500 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,007,800 5,875,400 Income Statement items 2018 2017 Answers/Comments Service Contract Revenues 9,200,000 6,595,400 Increase in contracts Service Contract Costs (6,503,100) (4.957.800) Gross Profit 2,696,900 1,637,600 Gross profit margin 2017: Gross profit margin 2018: (756,000) General and Administrative Expenses (896,000) Operating Income 1.800.900 881,600 Increase in profit - see above comment Gain on sale of equipment 59,900 7,700 Interest expense (69,500) (70,800) Other expense (9,600) (63,100) Income before taxes 1,781,700 755,400 Taxes (451,700) (300,900) Net Income 1,330,000 454,500 Increase in net income from 2017-2018 Retained Earnings, Beginning Balance 1,057,500 2,387,500 1,053,000 1,507,500 (150,000) No dividend paid in 2018 Less: Dividends paid Retained Earnings, Ending Balance 2,387,500 1,357,500
