Introduction:

Comic book sales have soared in recent years, largely fueled by the success of comic book-based

movies. This trend has led to increased interest in collecting and investing in comic books, with

many collectors seeking services such as grading, certification, and encapsulation to protect their

investments. The Exceptional Service Grading Company (ESGC) is one such service provider

looking to capitalize on this trend and expand its services to include certifying other publication

formats like large magazines and movie posters. This paper conducts a financial analysis of

ESGC to assess its current financial position and viability for expansion.

Financial Ratio Analysis:

To evaluate ESGC's financial position, we will analyze the following ratios (Andrew, 2024.):

 Gross Profit Margin: Gross Profit Margin: This ratio measures the percentage of revenue

that exceeds the cost of goods sold (COGS). It is calculated as follows:

Gross Profit Margin = [(Revenue-COGS)/Revenue] x 100%

 Current Ratio: This ratio assesses the company's ability to cover its short-term liabilities

with its short-term assets. It is calculated as follows:

Current Ratio = (Current Assets/Current Liabilities)

 Debt Ratio: This ratio indicates the proportion of a company's assets financed by debt. It

is calculated as follows:

Debt Ratio = (Total Debt/ Total Assets)

inventory by indicating how many times inventory is sold and replaced over a period. It is

calculated as follows:

Inventory Turnover Ratio = (Cost of Goods Sold/Average Inventory)

 Return on Assets (ROA): This ratio measures a company's ability to generate profit from

its assets. It is calculated as follows:

ROA = (Net Income/Total Assets)

Analysis of Financial Statements:

Referencing the income statement and balance sheet of ESGC, several trends emerge(The

Financial Storyteller, 2018):

 Gross Profit Margin: ESGC's gross profit margin has remained steady around 65% over

the past few years, indicating healthy profitability.

 Current Ratio: The company's current ratio has improved from 2017 to 2018, suggesting

better liquidity and ability to cover short-term obligations.

 Debt Ratio: ESGC's debt ratio has decreased slightly from 2017 to 2018, indicating a

reduction in reliance on debt financing.

 Inventory Turnover Ratio: ESGC's inventory turnover ratio has increased steadily over

the years, indicating improved efficiency in managing inventory.

 Return on Assets (ROA): ESGC's ROA has remained relatively stable, indicating

consistent profitability relative to its assets.

Based on the financial analysis, ESGC appears to be in a strong financial position with healthy

profitability, liquidity, and efficiency. The company's consistent gross profit margin, improving

current ratio, and decreasing debt ratio suggest sound financial management. Additionally, the

steady increase in inventory turnover ratio indicates improved operational efficiency.

Considering these factors, ESGC may have viability for expanding its services to include

certifying other publication formats such as large magazines and movie posters. However, further

analysis and due diligence, including market research and potential demand for these services,

would be necessary before making a final recommendation.

Limitations of Ratio Analysis:

While ratio analysis provides valuable insights into a company's financial health, it has its

limitations (Bierman & Smidt. 2006). These include:

 Limited Scope: Ratios only provide a snapshot of financial performance and may not

capture the full complexities of a company's operations.

 Industry Variations: Ratios should be compared with industry benchmarks to be

meaningful, as what constitutes a good ratio can vary by industry.

 Accounting Policies: Differences in accounting methods between companies can affect

ratio comparability.

 Non-Financial Factors: Ratios do not consider non-financial factors such as market

conditions, management quality, and technological advancements.

In conclusion, while ratio analysis is a useful tool for evaluating financial performance, it should

be used in conjunction with other qualitative and quantitative measures for a comprehensive

assessment.
 References

Bierman, H., & Smidt, S. (2006). The capital budgeting decision: economic analysis of

investment projects (9th ed.). Routledge.

The Finance Storyteller. (2018). Balance sheet and income statement relationship. YouTube.

Retrieved from https://youtu.be/wZdaVEX41WQ?si=zkSRbxSNglXxAGXU

Andrew Bloomenthal. (2024). Financial Ratio Analysis: Definition, Types, Examples, and How

to Use. Investopedia. Retrieved from https://www.investopedia.com/terms/r/ratioanalysis.asp