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 $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 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	$	74,000	$	160,000
Marketable securities		0		19,000
Accounts receivable, net		490,000		310,000
Inventory		955,000		605,000
Prepaid expenses		23,000		23,000
Total current assets		1,542,000		1,117,000
Plant and equipment, net		1,376,400		1,300,000
Total assets	$	2,918,400	$	2,417,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	750,000	$	440,000
Bonds payable, 12%		650,000		650,000
Total liabilities		1,400,000		1,090,000
Stockholders' equity:
Common stock, $20 par		700,000		700,000
Retained earnings		818,400		627,000
Total stockholders equity		1,518,400		1,327,000
Total liabilities and equity	$	2,918,400	$	2,417,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,050,000	$	4,380,000
Cost of goods sold		3,885,000		3,460,000
Gross margin		1,165,000		920,000
Selling and administrative expenses		655,000		550,000
Net operating income		510,000		370,000
Interest expense		78,000		78,000
Net income before taxes		432,000		292,000
Income taxes (30%)		129,600		87,600
Net income		302,400		204,400
Common dividends		111,000		90,000
Net income retained		191,400		114,400
Beginning retained earnings		627,000		512,600
Ending retained earnings	$	818,400	$	627,000

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.

Assume that Paul Sabin has asked you to assess his companys profitability and stock market performance.

Required:
1.	You decide first to assess the companys stock market performance. For both this year and last year, compute:

a

The earnings per share. There has been no change in common stock over the last two years.(Round your answers to 2 decimal places.)

This Year and Last Year Earnings per share

The dividend yield ratio. The companys stock is currently selling for $50 per share; last year it sold for $46 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).

This YearLast YearDividend yield ratio%%

The dividend payout ratio. (Round intermediate calculations to 2 decimal places. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

This YearLast YearDividend payout ratio%%

The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)

This YearLast YearPrice-earnings ratio

The book value per share of common stock. (Round your answers to 2 decimal places.)

	This Year	Last Year
Book value per share

2. You decide next to assess the companys profitability. Compute the following for both this year and last year:

a.	The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

This YearLast YearGross margin percentage%%

b.

The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

This YearLast YearNet profit margin percentage%%

c.

The return on total assets. (Total assets at the beginning of last year were $2,330,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

This YearLast YearReturn on total assets%%

d.

The return on equity. (Stockholders equity at the beginning of last year was $1,317,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

This YearLast YearReturn on equity%%

Is the companys financial leverage positive or negative?

	Positive
	Negative