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 $640,000 long-term loan from Gulfport State Bank, $170,000 of which will be used to bolster the Cash account and $470,000 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	$	126,000	$	290,000
Marketable securities		0		11,000
Accounts receivable, net		659,000		440,000
Inventory		1,020,000		735,000
Prepaid expenses		34,000		36,000
Total current assets		1,839,000		1,512,000
Plant and equipment, net		2,084,600		1,470,000
Total assets	$	3,923,600	$	2,982,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	870,000	$	440,000
Bonds payable, 12%		800,000		800,000
Total liabilities		1,670,000		1,240,000
Stockholders' equity:
Common stock, $15 par		830,000		830,000
Retained earnings		1,423,600		912,000
Total stockholders equity		2,253,600		1,742,000
Total liabilities and stockholders' equity	$	3,923,600	$	2,982,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,700,000	$	4,770,000
Cost of goods sold		4,015,000		3,590,000
Gross margin		1,685,000		1,180,000
Selling and administrative expenses		681,000		576,000
Net operating income		1,004,000		604,000
Interest expense		96,000		96,000
Net income before taxes		908,000		508,000
Income taxes (30%)		272,400		152,400
Net income		635,600		355,600
Common dividends		124,000		103,000
Net income retained		511,600		252,600
Beginning retained earnings		912,000		659,400
Ending retained earnings	$	1,423,600	$	912,000

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 $390,000.)

e. The average sale period. (The inventory at the beginning of last year totaled $640,000.)

f. The operating cycle.

g. The total asset turnover. (The total assets at the beginning of last year were $2,942,000.)

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 $1,732,000.)

2. For both this year and last year:

a. Present the balance sheet in common-size format.

b. Present the income statement in common-size format down through net income.

1A.

		This Year		Last Year
a.	Working capital
b.	Current ratio
c.	Acid-test ratio
d.	Average collection period		days		days
e.	Average sale period		days		days
f.	Operating cycle		days		days
g.	Total asset turnover
h.	Debt-to-equity ratio
i.	Times interest earned ratio
j.	Equity multiplier

2A.

Present the balance sheet in common-size format. (Round your answers to 1 decimal place.)

2B.

Present the income statement in common-size format down through net income. (Round your answers to 1 decimal place.)