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 sever 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 companys financial statements for the two recent years follow:

Sabin Electronics
Comparative Balance Sheet
	This Year	Last Year
Assets
Current Assets:
Cash	70,000	150,000
Marketable Securities	0	18,000
Accounts Receivable, Net	480,000	300,000
Inventory	950,000	600,000
Prepaid Expenses	20,000	22,000
Total Current Assets	1,520,000	1,090,000
Plant and Equipment, Net	1,480,000	1,370,000
Total Assets	3,000,000	2,460,000
Liabilities and Stockholders Equity
Liabilities:
Current Liabilities	800,000	430,000
Bonds Payable, 12%	600,000	600,000
Total Liabilities	1,400,000	1,030,000
Stockholder's Equity
Common Stock, $15 Par	750,000	750,000
Retained Earnings	850,000	680,000
Total Stockholder's Equity	1,600,000	1,430,000
Total Liabilities and Stockholder's Equity	3,000,000	2,460,000

Sabin Electronics
Comparative Income Statement
	This Year	Last Year
Sales	5,000,000	4,350,000
Cost of Goods Sold	3,875,000	3,450,000
Gross Margin	1,125,000	900,000
Selling and Administrative Expenses	653,000	548,000
Net Operating Income	472,000	352,000
Interest Expense	72,000	72,000
Net Income Before Taxes	400,000	270,000
Income Taxes (30%)	120,000	84,000
Net Income Before Taxes	280,000	196,000
Common Dividends	110,000	95,000
Net Income Retained	170,000	101,000
Beginning Retained Earnings	680,000	579,000
Ending Retained Earnings	850,000	680,000

During the past year, the company introduced several new product lines and raised the selling price 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 into several new territories. Sales terms are 2/10, n/30. All sales are on account.

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.
2. The amount of working capital
3. The current ratio
4. The acid-test ratio
5. The average collection period (The accounts receivable at the beginning of last year totaled $250,000)
6. The average sales period (The inventory at the beginning of last year totaled $500,000)
7. The operating cycle
8. The total asset turnover. (The total assets at the beginning of last year were $2,420,000)
9. The debt-to-equity ratio
10. The times interest earned ratio
11. 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

B. Present the income statement in common-size format down through net income

3. Paul Sabin has also gathered the following financial data and ratios that are typical of companies in the electronics industry:

Current Ratio 2.5

Acid-Test Ratio 1.3

Average Collection period 18 Days

Average Sales Period 60 Days

Debt-to-Equity Ratio 0.90

Times Interest Earned Ratio 6.0

Comment on the results of your analysis (1) and (2) above and compare Sabin Electronics performance to the benchmarks from the electronics industry. Do you think that the company is likely to get its loan application approved?