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 $540,000 long-term loan from Gulfport State Bank, $120,000 of which will be used to bolster the Cash account and $420,000 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	$	86,000	$	190,000
Marketable securities		0		22,000
Accounts receivable, net		529,000		340,000
Inventory		960,000		635,000
Prepaid expenses		22,000		26,000
Total current assets		1,597,000		1,213,000
Plant and equipment, net		1,631,600		1,410,000
Total assets	$	3,228,600	$	2,623,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	820,000	$	470,000
Bonds payable, 12%		800,000		800,000
Total liabilities		1,620,000		1,270,000
Stockholders' equity:
Common stock, $15 par		730,000		730,000
Retained earnings		878,600		623,000
Total stockholders equity		1,608,600		1,353,000
Total liabilities and stockholders' equity	$	3,228,600	$	2,623,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,200,000	$	4,470,000
Cost of goods sold		3,915,000		3,490,000
Gross margin		1,285,000		980,000
Selling and administrative expenses		661,000		556,000
Net operating income		624,000		424,000
Interest expense		96,000		96,000
Net income before taxes		528,000		328,000
Income taxes (30%)		158,400		98,400
Net income		369,600		229,600
Common dividends		114,000		93,000
Net income retained		255,600		136,600
Beginning retained earnings		623,000		486,400
Ending retained earnings	$	878,600	$	623,000

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 $290,000.)

e. The average sale period. (The inventory at the beginning of last year totaled $540,000.)

f. The operating cycle.

g. The total asset turnover. (The total assets at the beginning of last year were $2,540,000.)

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 $1,343,000.)

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.

This Year Last Year a. Working capital b. Current ratio days days days days days days c. Acid-test ratio d. Average collection period e. Average sale period f. Operating cycle g. Total asset turnover h. Debt-to-equity ratio i. Times interest earned ratio j. Equity multiplier Sabin Electronics Common-Size Balance Sheets This Year Last Year 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, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and equity % Sabin Electronics Common-Size Income Statements This Year Last Year Sales % % Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income % %