Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Application [LO13-1, LO13-2, LO13-3, LO13-4]

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 $620,000 long-term loan from Gulfport State Bank, $160,000 of which will be used to bolster the Cash account and $460,000 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	$	118,000	$	270,000
Marketable securities		0		30,000
Accounts receivable, net		633,000		420,000
Inventory		1,065,000		715,000
Prepaid expenses		30,000		34,000
Total current assets		1,846,000		1,469,000
Plant and equipment, net		1,969,200		1,490,000
Total assets	$	3,815,200	$	2,959,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	820,000	$	420,000
Bonds payable, 12%		850,000		850,000
Total liabilities		1,670,000		1,270,000
Stockholders' equity:
Common stock, $15 par		630,000		630,000
Retained earnings		1,515,200		1,059,000
Total stockholders equity		2,145,200		1,689,000
Total liabilities and equity	$	3,815,200	$	2,959,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,600,000	$	4,710,000
Cost of goods sold		3,995,000		3,570,000
Gross margin		1,605,000		1,140,000
Selling and administrative expenses		677,000		572,000
Net operating income		928,000		568,000
Interest expense		102,000		102,000
Net income before taxes		826,000		466,000
Income taxes (30%)		247,800		139,800
Net income		578,200		326,200
Common dividends		122,000		101,000
Net income retained		456,200		225,200
Beginning retained earnings		1,059,000		833,800
Ending retained earnings	$	1,515,200	$	1,059,000

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

2.	For both this year and last year:

a.	Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

b.	Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)