Problem 14-18 Common-Size Statements and Financial Ratios for a Loan Application (LO14-1, LO14-2, LO14-3, LO14-4] 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 $570,000 long-term loan from Gulfport State Bank, $135,000 of which will be used to bolster the Cash account and $435,000 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 $ 98,000 UF 568,000 1,015,000 26,000 1,707,000 1,686, 200 $ 3,393, 200 220,000 25,000 370,000 665,000 29,000 1,309,000 1,400,000 $ 2,709,000 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 stockholders' equity $ 835,000 600,000 1, 435,000 $ 500,000 600,000 1,100,000 760,000 1,198,200 1,958, 200 $ 3,393,200 760,000 849,000 1,609,000 $ 2,709,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $5,350,000 $ 4,560,000 Cost of goods sold 3,945,000 3,520,000 Gross margin 1,405,000 1,040,000 Selling and administrative expenses 667,000 562,000 Net operating income 738,000 478,000 Interest expense 72,000 72,000 Net income before taxes 666,000 406,000 Income taxes (30%) 199,800 121,800 Net income 466, 200 284, 200 Common dividends 117,000 96,000 Net income retained 349, 200 188, 200 Beginning retained earnings 849,000 660,800 Total liabilities and stockholders' equity $ 3,393,200 $ 2,709,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $5,350,000 $ 4,560,000 Cost of goods sold 3, 945,000 3,520,000 Gross margin 1, 405,000 1,040,000 Selling and administrative expenses 667,000 562,000 Net operating income 738,000 478,000 Interest expense 72,000 72,000 Net income before taxes 666,000 406,000 Income taxes (30%) 199,800 121,800 Net income 466, 200 284, 200 Common dividends 117,000 96,000 Net income retained 349,200 188, 200 Beginning retained earnings 849,000 660,800 Ending retained earnings $ 1,198, 200 $ 849,000 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. 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 $320,000.) e. The average sale period. (The inventory at the beginning of last year totaled $570,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,630,000.) 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 $1,599,000.) 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. Req 1 Reg 2A Reg 2B 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. (Round your answers to 2 decimal places.) c. The acid-test ratio. (Round your answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $320,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $570,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year were $2,630,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) i. The times interest earned ratio. (Round your answers to 2 decimal places.) j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,599,000.) (Round your answers to 2 decimal places.) Show less a. b. C. d. > This Year 872,000 2.04 1.30 32.00 days 77.72 days 109.72 days 1.75 0.31% 10.25 Working capital Current ratio Acid-test ratio Average collection period Average sale period Operating cycle Total asset turnover Debt-to-equity ratio Times interest earned ratio Equity multiplier Last Year 809,000 2.62 1.30 27.62 days 64.03 days 91.65 days 1.71 0.37 X e. If. > 9. h. i. 6.64 1.69 1.90 Reg 1 Reg 2A Req 2B Present the balance sheet in common-size format. (Round your answers to 1 decimal place.) Sabin Electronics Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash % % Marketable securities 0.0 0.0 0.0 % 0.0 % 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 % Answer is not complete. Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Present the income statement in common-size format down through net income. (Round your answers to 1 decimal place.) Sabin Electronics Common-Size Income Statements This Year Last Year Sales % % 0.0 0.0 0.0 0.0 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes Net income 0.0 0.0 0.0 % 0.0 %