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Comic Book Case Study- Part #2

Assignment Requirements
 
This is the 2nd part to the assignment you had previously done for me. However this is the financial part of it. I will be uploading all the same files that you need again, and I need you to look into accounting resources to evaluate the Income statement etc.
you will have to draw conclusions based on the data i provide you – ex. profitability of the company for current and future. Know about balance sheet and be able t analyze it.
This paper actually needs to be 10 + pages so i just put thirteen however pages not including charts and tables.
This should be business format so headings and sub headings – no essay
point for where appropriate.
Also if you can find the book for the course which is New venture startup- by Justin G Longnecker
i will also provide you the power points from the chapters that we need to know information for this second part of the case study.
I WILL BE SENDING YOU THE ACTUAL OUTLINE TO IT.
ENT 500
Case – The Comic Book Store Decision
 
 
Jamie Wong grew up in Belleville, Ontario. When he was 12 years old, he bought his first comic book. It was a Superman comic book, and from this purchase he fell in love with comic books, with the artwork and with the stories. By the time he was finishing high school, he was an avid collector, and most of his bedroom was taken up by his collection. He was spurred on by the news that the first Superman comic book sold for over $1 million. He attended comic book conventions and socialized with serious collectors like himself.
 
Jamie saw his future on the 20th episode of The Big Bang Theory, “The Hofstadter Isotope,” when Stuart Bloom was introduced as a character who owned the Comic Book Center of Pasadena. Jamie loved the comic book store portrayed and could think of nothing more satisfying than owning a comic book store. He remembered a quote from Hemingway he had studied in English class, “Find a hobby and make it your livelihood.”
 
Jamie’s parents wanted him to go to university, so he enrolled at Queen’s University in Kingston, Ontario to major in English. He used his comic book background to write essays such as, “Comic Book Heroes,” “The Superhero in Movies,” and “The Comic Book Transition to the Dark Side.” He still collected comic books and they now took up a full room in a house he shared with several other students in the “student ghetto” in Kingston.
 
When Jamie graduated, he decided to get into the comic book business. His parents had given him $10,000 as a graduation gift, so he had a small nest egg to invest. He had become friends with a comic book store owner in Kingston who wanted to move to Toronto to open a larger store. His store was located on Princess Street near Clergy, within walking distance of Queen’s. He offered Jamie a deal: Take over the lease and buy the inventory (approximately $20,000) and the store was his. The rent was $1000 per month. Jamie knew the store and its customers since he had worked there part-time during university.
 
Jamie talked to his parents and they offered to guarantee a loan at the bank for $25,000. Jamie would also have to take over a bank loan of $5000 from the current owner. The owner had given Jamie his Income Statement for 2012 (the latest available), and the Balance Sheet for 2011 and 2012 (Tables 1 and 2). Jamie had also found the financial ratios for comic book stores online (Table 3).
 
Your assignment is to evaluate the situation based on the market opportunity and the financials. Answer the questions on the Comic Book Store Case, Part 1 and Part 2, assignment sheet. Please view Stuart’s comic book store on “The Big Bang Theory,” either online or on television.
 
 
Table 1
Comic Book Store Balance Sheet, December 31, 2011 – December 31, 2012
($ thousands)
 
2011                                       2012
 
Assets
 
Current assets:
Cash                                                                      $   8                                       $   10
Accounts receivable                                          15                                            20
Inventory                                                               22                                            25
____                                     ____
Total current assets                                        $ 45                                       $ 55
 
Fixed Assets:
Store fixtures                                                    $ 50                                       $ 55
Accumulated depreciation                              15                                          20
 
____                                     ____
Net fixed assets                                               $ 35                                       $ 35
Other assets                                                         12                                          10
 
____                                     ____
TOTAL ASSETS                                   $ 92                                       $100
 
Debt (Liabilities) and Equity
 
Current liability
Accounts payable                                            $ 17                                       $ 20
Bank loan (operating)                                         5                                             5
Total current liabilities                    $   22                                      $ 25
Long term liabilities (bank loan)                      15                                         15
____                                     ____
Total liabilities                                                    $   37                                      $ 40
Total stockholders’ equity                                                 55                                         60
____                                     ____
TOTAL DEBT AND EQUITY                             $   92                                      $100
 
Table 2
Comic Book Store Income Statement for the year ended December 31, 2012
($ thousands)
 
2012
 
Sales revenue                                                                                                   $175
Cost of goods sold                                                                                          105
____
Gross profit on sales                                                                                       $ 70
 
Operating expenses:
Marketing expenses                                                                      $ 26
General and administrative expenses and rent     20
Depreciation                                                                                           5
____
Total operating expenses                                                             $ 51
____
Operating income                                                                                            $ 19
 
Interest expense                                                                                                  1
 
Earnings before taxes                                                                                    $ 18
____
Net income before taxes                                                                             $ 18
Table 3
 
Financial Ratios                                                                 Industry Norms
 
Current ratio                                                                                                      2.50
Acid-test ratio                                                                                                   1.50
Average collection period                                                                       5.00
Inventory turnover                                                                                         6.00
Debt-equity ratio                                                                                             1.00
Operating income return on investment                                          16.0%
Operating profit margin                                                                                8.0%
Total asset turnover                                                                                       2.00
Fixed asset turnover                                                                                      7.00
Times interest earned ratio                                                                         5.00
Return on equity                                                                                              14.0%
 
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