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 company's financial statements for the two most recent years follow: SABIN ELECTRONICS Comparative Balance Sheet This Year Last Year $ 65,200 458,200 919,000 18,600 1,461,000 1,120,000 $2,581,000 $ 112,000 13,600 224,000 448,000 16,200 813,800 1,036,200 1,850,000 Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Shareholders' equity: Preferred shares, no par ($6; 19,600 shares issued) Common shares, no par (unlimited authorized, 28,000 issued) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ $ 764,000 300.000 1,064,000 549,000 300,000 849,000 245,000 280,000 992,000 1,517,000 $2,581,000 245,000 280,000 476,000 1,001,000 $ 1,850,000 171 SABIN ELECTRONICS Comparative Income Statement This Year Sales $ 4,800,000 Less: Cost of goods sold 3,683,000 Gross margin 1,117,000 Less: Operating expenses 624,000 Net operating income 493,280 Less: Interest expense 36,000 Net income before taxes 457,000 Less: Income taxes (30%) 137,100 Net income 319,90 Dividends paid: Preferred dividends 20,000 Common dividends 86,400 Total dividends paid 106,400 Net income retained 213,500 Retained earnings, beginning of year 615,600 Retained earnings, end of year 829,100 Last Year $ 3,950,000 3,120,000 830,000 493,000 337,000 36,000 301,000 90,300 210, 700 20,000 67,800 87,800 122,900 492,700 615, 600 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 Acid-test (quick) ratio Average age of receivables Inventory turnover in days Debt-to-equity ratio Times interest earned Return on total assets Price-earnings ratio 2.5 to 1 1.3 to 1 18 days 60 days 0.90 to 1 6.0 times 13% 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 $222,000). e. The inventory turnover in days (the inventory at the beginning of last year totalled $444,000). f. The debt-to-equity ratio. g. The times interest earned. This Year Last Year to 1 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 days days to 1 to 1 times times 2. For both this year and last year: (a) Present the balance sheet in common-size format. (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 1 decimal place.) SABIN ELECTRONICS Common-Size Balance Sheets This Year Last Year Current assets: Cash % % 0.0 % 0.0 % % Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Current liabilities Bonds payable, 12% Total liabilities Shareholders' equity Preferred shares, no par, $6 Common shares, no par Retained earnings Total shareholders' equity Total liabilities and equity 0.0 0.0 0.0 0.0 0.0% 0.0 % (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.) SABIN ELECTRONICS Last Year % Common-Size Balance Sheets This 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