Super Melody Art Production Ltd. is a music and art production enterprise, among the business activities...

Transcribed Image Text:

Super Melody Art Production Ltd. is a music and art production enterprise, among the business activities the company is involved in are Video clips production, art singing ceremonies, CD's/ cassettes production, contracts with singers, music recording, studio works, cultural events and festivals organization and promotional activities. The company was established 5 years ago among 3 partners mainly entrepreneurs with limited capital, but due to tense competition in the industry and huge number of new singers in addition to emerging new specialized TV station in this domain, the company management was very optimistic of the future outcome of the business concern; due to such results two new Gulf partners were introduced in 2003 into the company with fresh funds for $3.5Mil injected into the business. The management team is very cautious whether to invest in stars i.e. signing contracts with high reputable and well known singers or investing in hi-tech equipment to furnish the company's studio. The decision tended towards the second option, such action made some managers to regret being in the company. - In present time, the company is facing some financial difficulties with respect to attracting some well known stars / singers. The industry is highly competitive especially with the availability of so many singers but limited numbers of talented and favored singers. Year 2003 was not a good year for the company due to expiry of some contracts with major singers and no financial capability is available at that time to renew. - The company management approached you as a credit officer at their sole bank, requesting increase of bank credit facilities from $850,000 to $2Mil. The facilities will be utilized to finance production contracts with some popular singers expecting to achieve a breakthrough in the world of singing. Questions: Analyze the financial position of the company and determine the major drawbacks and strengths of the company. In your opinion was it a wrong decision to launch a renewal of the company's studio? Assess the industry threats, opportunities, weaknesses and strengths. Would you approve the increase in the credit facilities and in what form/structure why? Would you recommend the company to enter any future business activities? Suggest. Super Melody Art Production Assets Current Assets Cash A/C Rec. Inventory Prepaid Contract T. Current Assets Fixed Assets Bldg. Decorations Equipment Good Will less: Acum. Dep. Net Fixed Assets Total Assets Liab. & equity Current Liab. Bank Debt A/C pay. Notes Payables Wages payable other Accruals T. Current Liab. Long term Liab Term bank Debt loans from partners T. long term Liab. Common Equity Capital Retained Earning T. Equity T. Liab. & Equity Balance Sheet 31/12/2002 25000 50000 950000 1050000 250000 310000 1100000 750000 2325000 2160000 31/12/2003 1200000 450000 850000 3600000 1000000 1000000 175000 225000 6325000 8485000 3325000 5650000 600000 65000 150000 75000 60000 950000 1200000 750000 840000 85000 260000 110000 70000 1365000 1650000 1180000 1000000 1200000 2650000 2380000 1850000 4500000 200000 240000 2050000 4740000 5650000 8485000 Income Statement Revenues less: cost of production Gross profit less: General & Admin Exp. Salaries Advertising Depreciation Expense Travel Expense Other Expenses Maintenance EBIT less:Interest Expense EBT less: Taxes Net Income 2002 8500000 4300000 4200000 1600000 2003 5800000 2850000 2950000 1200000 560000 500000 650000 460000 70000 240000 150000 65000 865000 220000 645000 65000 580000 50000 190000 135000 35000 380000 195000 185000 19000 166000 Super Melody Art Production Ltd. is a music and art production enterprise, among the business activities the company is involved in are Video clips production, art singing ceremonies, CD's/ cassettes production, contracts with singers, music recording, studio works, cultural events and festivals organization and promotional activities. The company was established 5 years ago among 3 partners mainly entrepreneurs with limited capital, but due to tense competition in the industry and huge number of new singers in addition to emerging new specialized TV station in this domain, the company management was very optimistic of the future outcome of the business concern; due to such results two new Gulf partners were introduced in 2003 into the company with fresh funds for $3.5Mil injected into the business. The management team is very cautious whether to invest in stars i.e. signing contracts with high reputable and well known singers or investing in hi-tech equipment to furnish the company's studio. The decision tended towards the second option, such action made some managers to regret being in the company. - In present time, the company is facing some financial difficulties with respect to attracting some well known stars / singers. The industry is highly competitive especially with the availability of so many singers but limited numbers of talented and favored singers. Year 2003 was not a good year for the company due to expiry of some contracts with major singers and no financial capability is available at that time to renew. - The company management approached you as a credit officer at their sole bank, requesting increase of bank credit facilities from $850,000 to $2Mil. The facilities will be utilized to finance production contracts with some popular singers expecting to achieve a breakthrough in the world of singing. Questions: Analyze the financial position of the company and determine the major drawbacks and strengths of the company. In your opinion was it a wrong decision to launch a renewal of the company's studio? Assess the industry threats, opportunities, weaknesses and strengths. Would you approve the increase in the credit facilities and in what form/structure why? Would you recommend the company to enter any future business activities? Suggest. Super Melody Art Production Assets Current Assets Cash A/C Rec. Inventory Prepaid Contract T. Current Assets Fixed Assets Bldg. Decorations Equipment Good Will less: Acum. Dep. Net Fixed Assets Total Assets Liab. & equity Current Liab. Bank Debt A/C pay. Notes Payables Wages payable other Accruals T. Current Liab. Long term Liab Term bank Debt loans from partners T. long term Liab. Common Equity Capital Retained Earning T. Equity T. Liab. & Equity Balance Sheet 31/12/2002 25000 50000 950000 1050000 250000 310000 1100000 750000 2325000 2160000 31/12/2003 1200000 450000 850000 3600000 1000000 1000000 175000 225000 6325000 8485000 3325000 5650000 600000 65000 150000 75000 60000 950000 1200000 750000 840000 85000 260000 110000 70000 1365000 1650000 1180000 1000000 1200000 2650000 2380000 1850000 4500000 200000 240000 2050000 4740000 5650000 8485000 Income Statement Revenues less: cost of production Gross profit less: General & Admin Exp. Salaries Advertising Depreciation Expense Travel Expense Other Expenses Maintenance EBIT less:Interest Expense EBT less: Taxes Net Income 2002 8500000 4300000 4200000 1600000 2003 5800000 2850000 2950000 1200000 560000 500000 650000 460000 70000 240000 150000 65000 865000 220000 645000 65000 580000 50000 190000 135000 35000 380000 195000 185000 19000 166000

Answer rating: 100% (QA)

a The financial position of the company is strong with assets totaling 8485000 and liabilities and equity totaling 5650000 The company has a strong equity position and strong cash flow However the com... View the full answer