PROBLEM 16-18 Common-Size Statements and Financial Ratios for a Loan Application LO16-1, LO16-2, LO16-3, LO16-4 Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices. Due to a cash shortage, the company is requesting a $500,000 long-term loan from Gulfport State Bank. The company's financial statements for the two most recent years follow: During the past year, the company introduced several new products and raised the selling prices on a number of existing products to improve its profit margin. The company also hired a new sales manager, who expanded sales into several new territories. Sales terms are 2/10,n/30. All sales are on account. Required: 1. To assist in approaching the bank about the loan, Paul 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 $250,000.) Page 759 e. The average sale period. (The inventory at the beginning of last year totaled $500,000.) f. The operating cycle. g. The total asset turnover. (The total assets at the beginning of last year were $2,420,000.) 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 $1,420,000.) 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. 3. Paul Sabin also gathered the following financial data and ratios typical of companies in the electronics industry: Comment on the results of your analysis in (1) and (2) above and compare Sabin Electronics' performance to the benchmarks from the electronics industry. Do you think the company will get its loan application approved