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Exceptional Service Grading Company – Case Study

Master of Business Administration, University of the People

BUS 5111-01: Financial Management

Dr. Geetika Arora

September 7, 2022

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Exceptional Service Grading Company – Case Study

1. Gross Profit Margin – “the gross margin ratio is the gross margin generated in each dollar

by net sales” (Accounting for Management, n.d). It is calculated by minus cost of goods

sold from net sales and then dividing by net sales.

Gross Profit Margin 2017 – 1,637,600/6,595,400 = 24.83%

Gross Profit Margin 2018 – 2,696,900/9.200,000 = 29.31%

Based on the figures achieved Exceptional Grading company generated 29.31% cents in gross

margin in net sales in 2018. This ratio increased by 4.48% in a year (2017-2018). This could

mean that there was increased profit margin. The business is doing good.

2. Current Ratio – is calculated by dividing current assets by current liabilities.

Year 2017 – 4,576,900/3,292,850 = 1.39

Year 2018 – 5,652,200/3,325.950 = 1.69

The figures imply that the company has enough current assets to cover its current liabilities. The

ratio however is high. This means the company is not using up its capital resources. The

company can invest more and use up surplus assets.

3. Debt Ratio – can be defined as a percentage of assets funded by creditors that is used to

leverage a company. It is calculated by dividing total liabilities by total assets.

Year 2017 – 4,067,900/5,875,400 = 69.2%

Year 2018 – 4,170,300/7,007,800 = 59.5%

The debt ratio figures suggest that there was an increase by 19.3%. When this ratio is

high the financial risk is also high.

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4. Quick Ratio – measures the high liquid assets that a company has to pay its current

liabilities.

Year 2017 – 4,576,900-100,200/3,292,850 = 1.36

Year 2018 – 5,652,200-89,800/3,325,950 = 1.67

The quick ratio is more than 1 which shows that the company can pay its current

liabilities.

5. Accounts Receivable Turnover ratio indicates how many times receivables collected in a

given period. It is calculated by dividing net credit sales by average accounts receivable.

Receivables Turnover ratio 2018 – 9,200,000/average (3,936,400;3,320,000) = 2.54

This indicator shows that the receivables turnover time is very long. The company mightg

have to cut down the customer’s debt time.

In my observations, analysis shows better information when it is done for a period of more than

two years. The company’s ratio are strong and the company should continue on this path with a

few tweaks. In my recommendation, Exceptional Service Grading should shorten their debt

collection period. They should also try investing to increase profits. The company should start

maximizing their capital resources.

References

Accounting for Management (n.d). Ratio analysis of Financial information.

https://www.accountingformanagement.org/break-even-point-anlysis

Finance for Managers (2012). Licensed under Creative Commons by-nc-sa 3.0.

https://myuopeople.edu-pluginfile.php/546007mod_page/content/17/Financeformanagers.pdf