A guide to the case study on Exceptional Service Grading Company plans on expanding services. Calculations include the financial ratios like gross profit margin, profit margin ratio, current ratio, debt ratio, debt to equity ratio, and final evaluation of these ratios. Limitations of financial rati...
Exceptional Service Grading Company is planning to expand its business by providing new
services. These services include assessing publication formats like certifying large magazines
and movie posters. This move was a consequence of the increase in comic book sales creating
new opportunities.
The task here is to evaluate the financial ratios and propose a recommendation. Financial ratios
are ratios calculated based on financial statements and provide meaningful financial information
about a firm (Corporate Finance Institute, 2022). The income statement and balance sheet for the
years 2017 and 2018 are given as raw data. Financial ratios like gross profit margin, debt ratio,
and the current ratio will be calculated. Next, a conclusion regarding the company's financial
health will be drawn. Finally, a recommendation will be given based on the analysis.
Gross profit margin
Gross profit margin indicates the amount of money that will be left to be used to cover costs like
operating costs, income tax, and interest (Bloomenthal, 2021). It is calculated by dividing the
gross profit by net sales.
The profit margin ratio shows the profit a firm makes from its revenue. The net revenue is
calculated by deducting all expenses from the total revenue. Finally, the profit margin ratio is
calculated by dividing the net revenue by the total revenue.
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