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 $580,000 long term loan from Gulfport State Bank, $140,000 of which will be used to bolster the Cash account and $440,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: Sabin Electronics Comparative Talance Sheet This Year Last Year $ 100,000 0 581,000 1,025,000 26.000 1, 732,000 1,759, 600 $ 3,491,600 230,000 26,000 380,000 675,000 30,000 1,341.000 1,450,000 '$ 2,791,000 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, 128 Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 840,000 650,000 1.490.000 $ 510,000 650,000 1,160.000 770,000 1.231.500 2,001, 600 $ 3,491,600 770,000 661,000 1,631,000 $ 2,791,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,400,000 $ 4,590,000 Cost of goods sold 3,955,000 3,530,000 Gross margin 1,445,000 1,060,000 Selling and administrative expenses 669,000 564,000 Net operating income 776,000 496,000 Interest expens 78,000 78,000 Not income before taxes 698,000 418,000 Income taxes (30) 209,400 125,400 Net income 488,600 292, 600 Common dividends 118.000 97,000 Net income retained 370, 600 195, 600 Beginning retained earnings 861,000 665, 400 Ending retained earnings $ 1,231, 600 S 861.000 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 $330,000) e. The average sale period. (The inventory at the beginning of last year totaled $580,000.) f. The operating cycle. 9. The total asset turnover. (The total assets at the beginning of last year were $2,660,000.) h. The debt-to-equity ratio. The timec Interest earned ratin Prev 1 of 2 !!! Next > arch C BE This Year Last Year 892,000 2.06 0.81 831,000 2.63 1.25 a. Working capital b. Current ratio c. Acid-test ratio d. Average collection period e. Average sale period f Operating cycle 9 Total asset turnover h. Debt-to-equity ratio i Times interest earned ratio i Equity multiplier 32.50 days 78.40 days 110.90 days 1.72 28.20 days 64.90 days 93. 10 days 1.68 Sabin Electronics Common-Size Balance Sheets This Year Last Year Assets Current assets Cash % % 0.0 0.0 0.0 % 0.0 % 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, 12% Total liabilities Stockholders' equity Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and equity % % 0.0 0.0 0.0 0.0 0.0 % 0.0 % Present the income statement in common-size format down through net income. ( Last Year % Sabin Electronics Common-Size Income Statements This Year Sales % Cost of goods sold Gross margin 0.0 Selling and administrative expenses Net operating income 0.0. Interest expense Net income before taxes 0.0 es 0.0 0.0 0.0 Income taxes Net income 0.0 % 0.0 %
