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 $ $70,000$ $ $150,000$

Marketable securities $018,000$

Accounts receivable, net $480,000300,000$

Inventory $950,000600,000$

Prepaid expenses $20,00022,000$

Total current assets $1,520,0001,090,000$

Plant and equipment, net $1,480,0001,370,000$

Total assets $ $3,000,000$ $ $2,460,000$

Liabilities and Stockholders$$ Equity

Liabilities:

Current liabilities $ $800,000$ $ $430,000$

Bonds payable, $12\%600,000600,000$

Total liabilities $1,400,0001,030,000$

Stockholders' equity:

Common stock, $ $15$ par $750,000750,000$

Retained earnings $850,000680,000$

Total stockholders$$ equity $1,600,0001,430,000$

Total liabilities and stockholders$$ equity $ $3,000,000$ $ $2,460,000$

Sabin Electronics

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $ $5,000,000$ $ $4,350,000$

Cost of goods sold $3,875,0003,450,000$

Gross margin $1,125,000900,000$

Selling and administrative expenses $653,000548,000$

Net operating income $472,000352,000$

Interest expense $72,00072,000$

Net income before taxes $400,000280,000$

Income taxes $(30\%)120,00084,000$

Net income $280,000196,000$

Common dividends $110,00095,000$

Net income retained $170,000101,000$

Beginning retained earnings $680,000579,000$

Ending retained earnings $ $850,000$ $ $680,000$

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.

Assume Paul Sabin has asked you to assess his company$$s profitability and stock market performance.

Required:

$1.$ You decide first to assess the company$$s stock market performance. For both this year and last year, compute:

a$.$ The earnings per share. There has been no change in common stock over the last two years.

b$.$ The dividend yield ratio. The company$$s stock is currently selling for $$40$ per share; last year it sold for $$36$ per share.

c$.$ The dividend payout ratio.

d$.$ The price$-$earnings ratio. $($Assume that the industry norm for the price$-$earnings ratio is $12.)$

e$.$ The book value per share of common stock.

$2.$ You decide next to assess the company$$s profitability. Compute the following for both this year and last year:

a$.$ The gross margin percentage.

b$.$ The net profit margin percentage.

c$.$ The return on total assets. $($Total assets at the beginning of last year were $$2,420,000.)$

d$.$ The return on equity. $($Stockholders$$ equity at the beginning of last year was $$1,420,000.)$

e$.$ Is the company$$s financial leverage positive or negative?You decide first to assess the company$$s stock market performance. For both this year and last year, compute:

a$.$ The earnings per share. There has been no change in common stock over the last two years. $($Round your answers to $2$ decimal places.$)$

b$.$ The dividend yield ratio. The company$$s stock is currently selling for $$40$ per share; last year it sold for $$36$ per share. $($Do not round intermediate calculations. Round your percentage answers to $1$ decimal place.$)$

c$.$ The dividend payout ratio. $($Do not round intermediate calculations. Round your percentage answers to $1$ decimal place.$)$

d$.$ The price$-$earnings ratio. $($Assume that the industry norm for the price$-$earnings ratio is $12.)($Do not round intermediate calculations. Round your answers to $2$ decimal places.$)$

e$.$ The book value per share of common stock. $($Round your answers to $2$ decimal places.$)$

This Year Last Year

a$.$ Earnings per share

b$.$ Dividend yield ratio $\%\%$

c$.$ Dividend payout ratio $\%\%$

d$.$ Price$-$earnings ratio

e$.$ Book value per share