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 company's financial statements for the two most recent years follow: Sabin Electronica Comparative Balance Sheet This Year Last Year $ 78,000 Assets Current assets Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 124 Total liabilities Stockholders equity! Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 503,000 965,000 22,000 1,568,000 1,503,800 $ 3,071, 800 $ 170,000 20,000 320,000 615,000 24,000 1,149,000 1.350,000 $ 2,499,000 $ 810,000 700,000 1,510,000 $ 450,000 700,000 1.150.000 710,000 851,800 1.561,900 $ 3,071,800 710,000 639,000 1.349,000 $ 2,499,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,100,000 $ 4,410,000 Cont 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 (309) 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 soles manager, who has expanded sales into several new territories. Sales terms are 2/10, 1/30. All sales are on account. Required: 1. To assist in approaching the bank about the loon, Paul has asked you to compute the following ratlos for both this year and last year a. The amount of working copital. b. The current ratio. c. The acid-test ratio. d. The average collection period. (The accounts recevable at the beginning of last year totaled $270,000.) e. The average sale period. (The inventory at the beginning of last year totaled $520,000.) 1. The operating cycle. 9. The total asset turnover (The total assets at the beginning of last year were $2,480,000) h. The debt-to-equity ratio 1. The times interest earned ratio. J. The equity multiplier (The total stockholders' equity at the beginning of last year totaled $1.339,000) 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
