Paul Sabin organized Sabin Electronics 10 years ago to produce and self 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 company's financial statements for the two most recent years follow. Sabin Electronics Comparative Balance Sheet This Year Last Year 74,000 0 490,000 955,000 23,000 1,542,000 1,276,400 $ 2,918.400 $ 160,000 19,000 310,000 605,000 23,000 1,117,000 1,200,000 $ 2,417,000 Assets Current assets Cash Marketable securities Accounts receivable, not Inventory Prepaid expenses Total current asset plant and equipment, net Total assets Liabilities and stockholders Equity Liabilities Current liabilities monds payable, 125 Total liabilities Stockholders' equity Common stock, $15 par Retained earnings Total stockholderst equity Total Habilities and stockholders' equity $ 750,000 650,000 1,400,000 $ 440,000 650,000 1,090,000 700,000 818,400 1.518.400 52,918,400 700,000 627.000 1.327.000 $ 2,417,000 Sabinlectronic Comparative Income Statement and Reconciliation This Year Tast Year Sales $ 5,050,000 $4,380,000 Cost of goods Hold 3.885,000 3,460.000 Gross margin 1,165,000 920,000 Selling and administrative expenses 555,000 550,000 Net operating income 510,000 370,000 Interest expense 78,000 78,000 Net income before taxes 432,000 292,000 Income taxes (301) 129.500 87.600 Net Income 302,400 204,400 Common dividends 111.000 90.000 Net Income retained 191,400 114,400 Beginning retained earnings 622.000 512) 500 Ending retained earnings 5 318.400 5 627,000 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, 1/30. All sales are on account Required: 1. To assist in approaching the bank about the loan. Paul has asked you to compute the following ratlos 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 $260,000) e. The average sale period. (The inventory at the beginning of last year totaled $510,000) The operating cycle. 9. The total asset turnover. (The total assets at the beginning of last year were $2,397000) n. The debt-to-equity ratio. J. The equity multiplier (The total stockholders' equity at the beginning of last year totaled $1317000) 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 The times interest earned ratio
