Reference no: EM132992157
Question - Spielgeist Games is a video gaming corporation that develops a wide range of video games for computers and smartphones, with purchases made through its online store. Revenues in the industry have consistently grown by more than 10% per year, and it is not uncommon for companies to post net profit margins of over 15%. Money has been pouring into the industry as investors anticipate that mergers and acquisitions will result in a few large firms using their financial strength to solidify their positions.
Over the last five years, Spielgeist has acquired two smaller businesses in the game development industry and integrated their highly talented staff into the Spielgeist corporation. Spielgeist is also exploring the idea of merging with a video streaming business and consolidating their services. Fully merging into two systems would be a very costly and time consuming process, but it could result in them being able to offer a subscription to the widest range of movies, TV shows, and games of any firm in the industry. Interest rates in the economy are still below their historical averages, so management is keen to take advantage of the cheaper borrowing costs while they still can.
Selected financial info from Spielgeist Games' final accounts for 2018; balance sheet info as at 31 Dec., 2018. All numbers are in thousands of dollars.
Other fixed assets: 535,000
Goodwill: 1,890,000
Cash: 4,700,000
Debtors: 623,000
Stock: 260,000
Creditors: 113,000
Other current liabilities: 1,480,000
Long term liabilities: 1,361,000
Share capital: 3,000
Accumulated retained profit: 5,051,000
Revenue: 4,950,000
Cost of goods sold: 1,322,000
Expenses: 2,595,000
Interest: 45,000
Tax: 60,000
Net profit after interest and tax: 928,000
Dividends: 300,000
Opening stock: 220,000
Closing stock: 260,000
Stock purchases: 1,362,000
Required -
-Construct a balance sheet using the above information.
-Construct a profit and loss account using the above information.
-Calculate the gross profit margin, net profit margin, current ratio, acid test ratio, and return on capital employed for Spielgeist based on the information in the final accounts.
-Comment on Spielgeist's financial situation as indicated by its gross profit margin and net profit margin.
-Comment on Spielgeist's liquidity position as indicated by its current ratio and acid test ration.
-Explain two reasons that Spielgeist may want to have a large amount of cash on hand.
-Calculate the inventory turnover, debtor days, creditor days, and gearing ratio for Spielgeist.
-Analyze Spielgeist's efficiency based on the ratios calculated in question 7.
-Discuss the merits of Spielgeist merging with a video streaming company.