16-18 (Static) Common-Size Statements and Financial Ratios for a Loan Application [LO16-1, LO16-2, LO16-3, LO16-4] Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now experiencing a severe cash shortage. For this reason, it is requesting a $500,000 long-term loan from Gulfport State Bank, $100,000 of which will be used to bolster the Cash account and $400,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets. Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities. Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $ 15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 70,000 $ 150,000 18,000 300,000 480,000 950,000 20,000 1,520,000 1,480,000 $ 3,000,000 600,000 22,000 1,090,000 1,370,000 $ 2,460,000 $ 800,000 600,000 1,400,000 750,000 850,000 1,600,000 $ 3,000,000 $ 430,000 600,000 1,030,000 750,000 680,000 1,430,000 $ 2,460,000 Sales Cost of goods sold Sabin Electronics Comparative Income Statement and Reconciliation This Year Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes. Income taxes (30%) Net income Common dividends $ 5,000,000 3,875,000 1,125,000 653,000 472,000 Last Year $ 4,350,000 3,450,000 900,000 548,000 352,000 72,000 72,000 400,000 280,000 120,000 84,000 280,000 196,000 110,000 95,000 170,000 101,000 680,000 579,000 $ 680,000 Net income retained Beginning retained earnings Ending retained earnings $ 850,000 During the past year, the company introduced several new product lines and raised the selling prices on a number of old product lines In order to improve Its profit margin. The company also hired a new sales manager, who has expanded sales into several new territories. Sales terms are 2/10, n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: a. The amount of working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts receivable at the beginning of last year totaled $250,000.) e. The average sale period. (The inventory at the beginning of last year totaled $500,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,420,000.) h. The debt-to-equity ratio. i. The times interest earned ratio. j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,420,000.) 2. For both this year and last year: a. Present the balance sheet in common-size format for both this year and last year. b. Present the income statement in common-size format down through net income for both this year and last year. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year: a. The amount of working capital. b. The current ratio. (Round your answers to 2 decimal places.) c. The acid-test ratio. (Round your answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $250,000.) (Round your Intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) e. The average sale period. (The Inventory at the beginning of last year totaled $500,000.) (Round your Intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) f. The operating cycle. (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) g. The total asset turnover. (The total assets at the beginning of last year were $2,420,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) i. The times interest earned ratio. (Round your answers to 2 decimal places.) J. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,420,000.) (Round your answers to 2 decimal places.) a. Working capital This Year Last Year b. Current ratio c. Acid-test ratio d. Average collection period days days e. Average sale period days days f. Operating cycle days days g. Total asset turnover h. Debt-to-equity ratio iTimes interest earned ratio j. Equity multiplier Req 1 Req 2A > Show less Req 1 Req ZA Req 28 Present the balance sheet in common-size format for both this year and last year. (Round your answers to 1 decimal place.) Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Sabin Electronics Common-Size Balance Sheets This Year Last Year Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity. Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and equity % % % % % % % < Req 1 % Req 2B > Req 1 Req 2A Req 2B Present the income statement in common-size format down through net income for both this year and last year. (Round your answers to 1 decimal place.) Sales Cost of goods sold Gross margin Sabin Electronics Common-Size Income Statements Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income This Year Last Year % % % % < Req 2A Req 28