Financial Statements Documentation Game December 31, 2017

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Provide a comprehensive analysis of the financial statements of Game Card as of December 31, 2017, including the income statement, balance sheet, and cash flow statement. The discussion should interpret key financial data, ratios, and trends, and assess the company's financial health and operational performance during the year.

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The financial statements of Game Card for the year ending December 31, 2017, offer valuable insights into the company's financial health, operational efficiency, and overall performance. Analyzing these documents—which include the income statement, balance sheet, and cash flow statement—can help stakeholders understand the company's profitability, liquidity, and capital management.

Income Statement Analysis

The income statement reveals that Game Card generated gross sales of $417,600, with returns and allowances reducing net sales to $383,500. The cost of goods sold (COGS) was $101,000, resulting in a gross profit of $282,500. The gross profit margin, calculated as gross profit divided by net sales, stands at approximately 73.7%, indicating that a significant portion of sales revenue remains after COGS, which is typical for retail businesses operating with efficient inventory management.

Additional income from interest amounted to $3,700, bringing total income to $286,200. The expenses totaled $182,000 and covered salaries and benefits, utilities, rent, office supplies, insurance, advertising, website maintenance, taxes, and licenses. The resulting net income of $104,200 signifies a strong profitability level within the reporting period. The net profit margin, calculated as net income divided by net sales, is approximately 27.1%, indicating effective cost management and pricing strategies.

Balance Sheet Overview

The balance sheet provides a snapshot of Game Card's assets, liabilities, and equity at the end of 2017. Total assets are valued at $184,000, with current assets forming a significant portion. Cash makes up 15.4% of assets, while inventory accounts for 114.1%, which suggests a substantial investment in inventory relative to other assets—reflective of a retail business that relies heavily on managing stock levels effectively.

Liabilities total $142,000, primarily consisting of business loans (75%), with accounts payable representing 13.2%. Equity, which is the residual interest after liabilities, is $42,100, making up 22.9% of total assets. Notably, the high proportion of liabilities indicates a leveraged position, which could enhance returns but also requires careful cash flow management to cover debt obligations.

Cash Flow Statement Analysis

Examination of the cash flow statement demonstrates how operations, investments, and financing activities influenced cash positions. Operating activities generated a net cash inflow of $84,600, driven primarily by net income. Adjustments for non-cash items like depreciation ($3,200) and changes in working capital—such as increases in accounts receivable and inventory—highlight cash management challenges inherent in retail operations.

The investing activities show an outflow of $31,500 for equipment purchases, which indicates ongoing investment in infrastructure or technology to support business growth. Decreases in notes receivable contributed an additional $700 to investing inflows.

Financing activities resulted in a net inflow of $26,000, primarily from increases in long-term notes payable and a new term loan, reflecting the company's strategy to leverage debt for growth or operational liquidity. Overall, the total increase in cash was $79,800, bringing the cash balance at year-end to $152,900, up from $73,100 at the beginning of the year.

Financial Ratios and Health Assessment

Overall, Game Card's financial statements suggest a healthy and profitable business. The gross profit margin of 73.7% and net profit margin of 27.1% are strong indicators of efficient sales and expense management within the retail sector. The company's ability to generate positive operating cash flows reinforces operational stability.

Liquidity appears adequate with a significant cash balance relative to short-term liabilities. However, the high inventory levels, accounting for 114.1% of total assets, warrant close monitoring to prevent excess stock that could tie up cash unnecessarily. The company's leverage, with liabilities constituting 142% of assets, signals the need for vigilant debt servicing, especially given the dependency on continued cash flow to meet debt obligations.

Return ratios like Return on Assets (ROA) and Return on Equity (ROE) could provide further valuation insights but would require additional data. Nonetheless, the data suggests prudent capital management, with ongoing investments through debt financing indicating strategic growth initiatives.

Conclusion

In summary, Game Card's 2017 financial statements depict a financially stable and profitable operation with effective revenue generation and expense control. Nonetheless, the high inventory levels and leverage ratios highlight areas for potential optimization. Maintaining a balance between leveraging debt for growth and ensuring liquidity will be crucial for continued success. Stakeholders should continue monitoring key metrics and operational strategies to ensure sustained profitability and financial health in the coming years.

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