Problem 14-19 Financial Ratlos for Assessing Profitability and Market Performance [LO14-5, LO14-6] 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 $650,000 long-term loan from Gulfport State Bank, $175,000 of which will be used to bolster the Cash account and $475,000 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 $ 138,eee 672.ee 1,095, eee 34,600 1,931, eee 2,699,400 $ 4,638,400 $ 3ee,eee 12,eee 45e,eee 745, eee 37,600 1,544.eee 1,520,eee $ 3,064, eee 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: Connon stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ 875,eee 758,eee 1,625,000 450.000 75e,eee 1,288,eee 840, see 1,565,40e 2,405,400 $ 4,038,480 848,eee 1.824.800 1,864.eee $ 3,064,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 5,750,eee Cost of goods sold 4,825,00 Gross margin 1,725.ee Selling and administrative expenses 683,800 Net operating income 1,842,eee Interest expense 90,000 Net income before taxes 952, eee Income taxes (38x) 285,6ee Net income 666, 4ee Connon dividends 125.ee Net income retained 541, 4ee Beginning retained earnings 1,624,6ee Ending retained earnings $ 1,565,480 Last Year $ 4,800,eee 3,600,000 1, 2ee.eee 578,eee 622.ee 90,000 532.ee 159,6ee 372,400 104,000 268,460 755,600 $ 1,024,000 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, 1/30. All sales are on account. Assume Paul Sabin has asked you to assess his company's profitability and stock market performance. Required: 1. You decide first to assess the company's stock market performance. For both this year and last year, compute: a. The earnings per share. There has been no change in common stock over the last two years. b. The dividend yield ratio. The company's stock is currently selling for $50 per share; last year it sold for $45 per share. c. The dividend payout ratio. d. The price-earings ratio. (Assume that the Industry norm for the price-earnings ratio is 8) e. The book value per share of common stock. 2. You decide next to assess the company's profitability. Compute the following for both this year and last year. a. The gross margin percentage. b. The net profit margin percentage. c. The return on total assets. (Total assets at the beginning of last year were $3,024,000.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1.854.000.) e. Is the company's financial leverage positive or negative? Complete this question by entering your answers in the tabs below. Required 1 Required 2 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 $3,024,000.) (Round your percentage answers to 1 decimal place.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,854,000.) (Round your percentage answers to 1 decimal place.) e. Is the company's financial leverage positive or negative? Show less 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 %