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 $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Last Year $ Sabin Electronics Comparative Balance Sheet This Year Assets Current assets: Cash 86,000 Marketable securities Accounts receivable, net 529,000 Inventory 960,000 Prepaid expenses 22,000 Total current assets 1,597,000 Plant and equipment, net 1,631,600 Total assets $ 3,228,600 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 820,000 Bonds payable, 12% 800,000 Total liabilities 1,620,000 Stockholders' equity: Common stock, $20 par 730,000 Retained earnings 878,600 Total stockholders' equity 1,608,600 Total liabilities and stockholders equity $ 3,228,600 $ 190,000 22,000 340,000 635,000 26,000 1,213,000 1,410,000 $ 2,623,000 es 470,000 800,000 1,270,000 730,000 623,000 1,353,000 $ 2,623,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,200,000 $ 4,470,000 Cost of goods sold 3,915,000 3,490,000 Gross margin 1,285,000 980,000 Selling and administrative expenses 661,000 556,000 Net operating income 624,000 424,000 Interest expense 96,000 96,000 Net income before taxes 528,000 2000 328,000 Income taxes (30%) 158,400 98,400 Net income 369,600 229,600 Common dividends 114,000 Net income retained 255,600 136, 600 Beginning retained earnings 623,000 486,400 Ending retained earnings $ 878,600 $ 623,000 93,000 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 $60 per share; last year it sold for $56 per share. c. The dividend payout ratio. d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 11) 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 $1,343,000.) e. Is the company's financial leverage positive or negative? Required 1 Required 2 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 $60 per share; last year it sold for $56 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 11.) (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.) Show less 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 % % % % Required 1 Required 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. (Round your percentage answers to 1 decimal place.) b. The net profit margin percentage. (Round your percentage answers to 1 decimal place.) c. The return on total assets. (Total assets at the beginning of last year were $2,420,000.) (Round your percentage answers to 1 decimal place.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,343,000.) (Round your percentage answers to 1 decimal place.) e. Is the company's financial leverage positive or negative? Show less Last Year 21.9% 5.11% a. Gross margin percentage b. Net profit margin percentage c. Return on total assets d. Return on equity e. Financial Leverage This Year 24.71% 7.1% 11.4 % 23.01% Positive 8.8% 17.01% Positive