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 $520,000 long-term loan from Gulfport State Bank, $110,000 of which will be used to bolster the Cash account and $410,000 of which will be used to modernize 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 $ 78,000 $ 170,000 Marketable securities 0 20,000 Accounts receivable, net 503,000 320,000 Inventory 965,000 615,000 Prepaid expenses 22,000 24,000 Total current assets 1,568,000 1,149,000 Plant and equipment, net 1,503,800 1,350,000 Total assets $ 3,071,800 $ 2,499,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 810,000 $ 450,000 Bonds payable, 12% 700,000 700,000 Total liabilities 1,510,000 1,150,000 Stockholders' equity: Common stock, $20 par 710,000 710,000 Retained earnings 851,800 639,000 Total stockholders equity 1,561,800 1,349,000 Total liabilities and equity $ 3,071,800 $ 2,499,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,100,000 $ 4,410,000 Cost of goods sold 3,895,000 3,470,000 Gross margin 1,205,000 940,000 Selling and administrative expenses 657,000 552,000 Net operating income 548,000 388,000 Interest expense 84,000 84,000 Net income before taxes 464,000 304,000 Income taxes (30%) 139,200 91,200 Net income 324,800 212,800 Common dividends 112,000 91,000 Net income retained 212,800 121,800 Beginning retained earnings 639,000 517,200 Ending retained earnings $ 851,800 $ 639,000 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 that Paul Sabin has asked you to assess his companys profitability and stock market performance. Required: 1. You decide first to assess the companys 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 companys stock is currently selling for $50 per share; last year it sold for $46 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

c. The dividend payout ratio. (Round intermediate calculations to 2 decimal places. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

d. The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)

e. The book value per share of common stock. (Round your answers to 2 decimal places.)

2. You decide next to assess the companys profitability. Compute the following for both this year and last year:

a. The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

b. The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

c. The return on total assets. (Total assets at the beginning of last year were $2,360,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

d. The return on equity. (Stockholders equity at the beginning of last year was $1,339,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

e. Is the companys financial leverage positive or negative? Positive Negative