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?
• 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.

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	844,350		775,050
TOTAL LIABILITIES	4,170,300		4,067,900
STOCKHOLDERS' EQUITY
Common stock	450,000		450,000
Retained Earnings	2,687,500		1,357,500
Total stockholders' equity	3,137,500		1,807,500
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY	7,307,800		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:
General and Administrative Expenses	(896,000)		(756,000)
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	1,357,500		1,053,000
	2,687,500		1,507,500
Less: Dividends paid	0		(150,000)	No dividend paid in 2018
Retained Earnings, Ending Balance	2,687,500		1,357,500

please answer each point in details and explain