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 $700,000 long-term loan from Gulfport State Bank, $200,000 of which will be used to bolster the Cash account and $500,000 of which will be used to modernize equipment. The companys financial statements for the two most recent years follow:

Sabin ElectronicsComparative Balance SheetThis YearLast YearAssetsCurrent assets:Cash$150,000$350,000Marketable securities017,000Accounts receivable, net737,000500,000Inventory1,145,000795,000Prepaid expenses38,00042,000Total current assets2,070,0001,704,000Plant and equipment, net2,300,8001,530,000Total assets$4,370,800$3,234,000Liabilities and Stockholders EquityLiabilities:Current liabilities$900,000$420,000Bonds payable, 12%900,000900,000Total liabilities1,800,0001,320,000Stockholders' equity:Common stock, $15 par870,000870,000Retained earnings1,700,8001,044,000Total stockholders equity2,570,8001,914,000Total liabilities and equity$4,370,800$3,234,000

Sabin ElectronicsComparative Income Statement and ReconciliationThis YearLast YearSales$6,000,000$4,950,000Cost of goods sold4,075,0003,650,000Gross margin1,925,0001,300,000Selling and administrative expenses693,000588,000Net operating income1,232,000712,000Interest expense108,000108,000Net income before taxes1,124,000604,000Income taxes (30%)337,200181,200Net income786,800422,800Common dividends130,000109,000Net income retained656,800313,800Beginning retained earnings1,044,000730,200Ending retained earnings$1,700,800$1,044,000

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 3/10, 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 $450,000.)

e.The average sale period. (The inventory at the beginning of last year totaled $700,000.)

f.The operating cycle

g.The total asset turnover. (The total assets at the beginning of last year were $3,194,000.)

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 $1,904,000.)