Problem 14-19 Financial Ratios for Assessing Profitability and Market Performance [LO14-5, LO14-6]

3 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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow: 8.34 points Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 110,000 S 250,000 28,000 400,000 695, 000 32,000 1,405,000 1.470,000 607,000 1, 045,000 30,000 1 792 000 1946.400 Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: $3,738 400$ 2,875,000 Current liabilities Bonds payable, 128 S 850,000400,000 750,000 1,150,000 750 000 1600 000 Total liabilities Stockholders equity: Common stock, $20 par Retained earnings 790,000 1.348 400 2,138.400 s 3.738,400 790,000 935,000 1725,000 2,875,000 Total stockholders' equity Total liabilities and stockholders' equity Mc You decide next to assess the company's profitability. Compute the following for both this year and last year a. The gross margin percentage. (Round your percentage answers to 1 decimal place.) b. The net profit margin percentage. (Round your percentage answers to 1 decimal place.) c. The return on total assets. (Total assets at the beginning of last year were $2,670,000.) (Round your percentage answers to 1 decimal place.) d. The return on equity. (Stockholders equity at the beginning of last year was $1,715,00o.) (Round your percentage answers to 1 decimal place.) e. Is the company's financial leverage positive or negative? ts Book Print Show less A erences This Year Last Year a. Gross margin percentage b. Net profit margin percentage c. Return on total assets d. Return on equity e. Financial Leverage