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 $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 most 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 stockholder's 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 and Reconciliation

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 400,000 280,000

Income taxes (30%) 120,000 84,000

Net income 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 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.

Required:

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:

a. The amount of working capital.

b. The current ratio.

c. The acid-test ratio.

d. The average collection period. (The accounts receivable at the beginning of last year totaled $250,000.)

e. The average sale period. (The inventory at the beginning of last year totaled $500,000.)

f. The operating cycle.

g. The total asset turnover. (The total assets at the beginning of last year were $2,420,000.)

h. The debt-to-equity ratio.

i. The times interest earned ratio.

j. 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 for both this year and last year.

b. Present the income statement in common-size format down through net income for both this year and last year.

Present the balance sheet in common-size format for both this year and last year. (Round your answers to 1 decimal place.)

Sabin Electronics
Common-Size Balance Sheets
	This Year	Last Year
Assets
Current assets:
Cash	not attempted	%	not attempted	%
Marketable securities	not attempted		not attempted
Accounts receivable, net	not attempted		not attempted
Inventory	not attempted		not attempted
Prepaid expenses	not attempted		not attempted
Total current assets	0.0		0.0
Plant and equipment, net	not attempted		not attempted
Total assets	0.0	%	0.0	%
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	not attempted	%	not attempted	%
Bonds payable, 12%	not attempted		not attempted
Total liabilities	0.0		0.0
Stockholders equity:
Common stock, $15 par	not attempted		not attempted
Retained earnings	not attempted		not attempted
Total stockholders equity	0.0		0.0
Total liabilities and equity	0.0	%	0.0	%