Problem 14-18 Common-Size Statements and Financial Ratios for a Loan Application (LO14-1, LO14-2, LO14-3, LO14-4) -Book eferences 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 $550,000 long-term loan from Gulfport State Bank, $125,000 of which will be used to bolster the Cash account and $425,000 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 Assets Current assets: Cash 90,000 $ 200,000 Marketable securities 23,000 Accounts receivable, net 542,000 350,ce Inventory 995, eee 645,00 Prepaid expenses 22,000 27.000 Total current assets 1,649.000 1,245,000 Plant and equipment, net 1.638,000 1,420,000 Total assets $ 3.287,000 $ 2,665,000 Liabilities and Stockholders Equity Liabilities: Current liabilities 825,000 $ 480,000 $ $ 1,649,000 1,638,000 $ 3,287,000 1,245,000 1,420,000 $ 2,665,000 tal current assets Lant and equipment, net otal 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 825,000 850, eee 1,675, eee 480,000 850,000 1,330, eee 740, eee 872,000 1,612, eee $ 3,287,000 740, eee 595,000 1,335,000 $ 2,665,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 5,250,000 Cost of goods sold 3,925,000 Gross margin 1,325,000 Selling and administrative expenses 663, eee Net operating income 662, eee Interest expense 102,00e Net income before taxes 560,000 Income taxes (30%) 168, eee Not income 392 AAA Last Year $ 4,500,000 3,5ee, eee 1, eee, eee 558, eee 442,000 182.eee 340, eee 102,000 PR AAA Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 5,250,000 Cost of goods sold 3,925,000 Gross margin 1,325,000 Selling and administrative expenses 663,000 Net operating income 662,000 Interest expense 102,000 Net income before taxes 560,000 Income taxes (30%) 168,000 Net income 392, eee Common dividends 115,000 Net income retained 277,000 Beginning retained earnings 595,000 Ending retained earnings $ 872,000 Last Year $ 4,500,000 3,500,000 1,000,000 558,000 442,000 102,000 340,000 102,000 238,000 94, 144, eee 451, eee 595,000 $ 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 $300,000) e. The average sale period. (The inventory at the beginning of last year totaled $550,000.) f. The operating cycle 9. The total asset turnover. (The total assets at the beginning of last year were $2,570,000.) h. The debt-to-equity ratio. 1. The times interest earned ratio. J. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,325,000) 2. For both this year and last year: a. Present the balance sheet in common-size format wat in through net income