Case: Comic Book Store Part 2
Questions:
1. Evaluate the income statement and compare to industry data provided. Draw conclusions about profitability, current and future. What would
income statement key metrics be if the company met industry data numbers? Convert the income statement to % based on sales of 100%. Value 25.
2. Analyze the asset and liability statement (balance sheet). Discuss the type of assets and implications. Discuss the type of liabilities
and implications. Use industry norms provided. Value 25.
3. Does the company have free cash flow? Explain the importance of free cash flow? Note that depreciation is a non-cash expense. Read Ch. 15.
Value 10.
4. Should Jamie buy the company? Why or why not? If yes, what should he offer for the company? Provide a rationalization for your decision.
If you decide that Jamie should buy the company, discuss how he would finance the purchase. Value 35.
5. The structure of the assignment is business format. Use headings and sub-headings, no essays. Point form where appropriate. Correct
English and grammar. References (sources) in proper format. Value 5.
Length:
It is expected that the assignment will be 10+ pages.
Some sources:
> Text, especially Chapters 12, 13, 14, and 15
> Handout from the business librarian, Lucina Fraser, given out in her lecture
> K. Jensen, Competitive Analysis, posted on Blackboard (Course Materials)
> K. Jensen, Industry Dynamics and Change (link on Blackboard, Course Materials)
> Any Finance and Accounting text
> Ch. 5 Finance from J. R. Skinner, “Business Plan Business Reality.” Document available at
the Ryerson Bookstore
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%
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT 🙂