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 falrly profitable, t is now experlencing a severe cash shortage. For this reason, It is requesting a $610,000 long-term loan from Guifport State Bank, $155,000 of which will be used to bolster the Cash account and $455.000 of which will be used to modernize equlpment. The company's financlal statements for the two most recent years follow. Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets 114,888 $ 268,880 29,886 418,886 785,806 Marketable securities Accounts receivable, net 628,888 1,855,898 36,888 1,819,888 77,880 $ 3,796,888 Inventory Prepaid expenses Total current assets Plant and equipnent, net Total assets 1,437,898 1,488,8e0 2,917,888 Liabilities and Stockholders Equity Liabilities Current liabilities Bonds payable, 12% $418,880 , , Total liabilities Stockholders' equity: Conmon stock, $28 par Retained earnings 9e6,886 1,341,886 , 987,886 Total stockholders equity Total liabilities and stockholders' equity $ 3,796,880 $ 2,917,880 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,558,880 4,688,880 3,568,8e0 1,128,eee Cost of goods sold 3,985,888 Gross Selling and administrative expenses Net operating income nargin 675,806 898,886 96,880 794,886 Net income before taxes Income taxes (30%) Net income Conmon dividends Net income retained Beginning retained earnings 96,880 454,886 136,286 317,880 188,886 217,888 689,286 $ 1,341,886 $97,880 555,886 121,888 434,888 987,886 Ending retained earnings During the past year, the company Introduced several new product lines and ralsed the selling prices on a number of old product lines In order to Improve its profit margin. The company also hlred a new sales manager, who has expanded sales Into several new territorles. Sales terms are 310, n/30. All sales are on account. Assume Paul Sabin has asked you to assess his company's profitabillty 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 yleld ratio. The company's stock is currently selling for $65 per share: last year It sold for $55 per share. C. The dividend payout ratio. d. The price-eamings ratio. (Assume that the Industry norm for the price-earnings ratio Is 8) e. The book value per share of common stock. 2. You decide next to assess the company's profitabillity. Compute the followlng 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 $2770,000.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,697000.) e. Is the company's financial leverage posltive or negative
