Paul Sabin organized Sabin Electronics 10 years ago in order 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 certain key items of equipment. The companys financial statements for the two most recent years follow: SABIN ELECTRONICS Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 73,000 $ 130,000 Marketable securities 16,000 Accounts receivable, net 514,600 260,000 Inventory 1,033,000 520,000 Prepaid expenses 20,400 18,600 Total current assets 1,641,000 944,600 Plant and equipment, net 1,240,000 1,205,400 Total assets $ 2,881,000 $ 2,150,000 Liabilities and Shareholders Equity Liabilities: Current liabilities $ 860,000 $ 600,000 Bonds payable, 12% 400,000 400,000 Total liabilities 1,260,000 1,000,000 Shareholders equity: Preferred shares, no par ($6; 22,480 shares issued) 281,000 281,000 Common shares, no par (unlimited authorized, 34,000 issued) 340,000 340,000 Retained earnings 1,000,000 529,000 Total shareholders equity 1,621,000 1,150,000 Total liabilities and shareholders equity $ 2,881,000 $ 2,150,000 SABIN ELECTRONICS Comparative Income Statement This Year Last Year Sales $ 5,400,000 $ 4,250,000 Less: Cost of goods sold 4,139,000 3,360,000 Gross margin 1,261,000 890,000 Less: Operating expenses 702,000 529,000 Net operating income 559,000 361,000 Less: Interest expense 48,000 48,000 Net income before taxes 511,000 313,000 Less: Income taxes (30%) 153,300 93,900 Net income 357,700 219,100 Dividends paid: Preferred dividends 20,000 20,000 Common dividends 97,200 72,900 Total dividends paid 117,200 92,900 Net income retained 240,500 126,200 Retained earnings, beginning of year 656,400 530,200 Retained earnings, end of year $ 896,900 $ 656,400 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 that the following ratios are typical of firms in the electronics industry: Current ratio 2.5 to 1 Acid-test (quick) ratio 1.3 to 1 Average age of receivables 18 days Inventory turnover in days 60 days Debt-to-equity ratio 0.90 to 1 Times interest earned 6.0 times Return on total assets 13 % Priceearnings ratio 12 Required:

1. To assist the Gulfport Bank in making a decision about the loan, compute the following ratios for both this year and last year (Use 365 days a year. Round your intermediate calculations to 1 decimal place. Round Debt-to-equity ratio to 3 decimal places and other answers to 2 decimal places.): a. The amount of working capital. b. The current ratio. c. The acid-test (quick) ratio. d. The average age of receivables (the accounts receivable at the beginning of last year totalled $258,000). e. The inventory turnover in days (the inventory at the beginning of last year totalled $516,000). f. The debt-to-equity ratio. g. The times interest earned.

(b) Present the income statement in common-size format down through net income. (Input all values as positive values. Round your answers to 1 decimal place.)

This Year Last Year to 1 to 1 to 1 Working capital Current ratio Acid-test ratio Average age of receivables Inventory turnover in days Debt-to-equity ratio Times interest earned days days to 1 to 1 days days to 1 times times SABIN ELECTRONICS Common-Size Balance Sheets This Year Last Year % Sales % Less cost of goods sold Gross margin Less operating expenses Net operating income Less interest expense Net income before taxes Less income taxes Net income % %