Problem 16-18 (Static) 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 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 $500,000 long-term loan from Gulfport State Bank, $100,000 of which will be used to bolster the Cash account and $400,000 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 $ 70,000 0 480,000 950,000 20,000 1,520,000 1,480,000 $3,000,000 $ 150,000 18,000 300,000 600,000 22,000 1,090,000 1,370,000 $ 2,460,000 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 $ $ 800,000 600,000 1,400,000 $ 430,000 600,000 1,030,000 750,000 850,000 1,600,000 $ 3,000,000 750,000 680,000 1,430,000 $ 2,460,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,000,000 $ 4,350,000 Cost of goods sold 3,875,000 3,450,000 Gross margin 1, 125,000 900,000 Selling and administrative expenses 653,000 548,000 Net operating income 472,000 352,000 Interest expense 72,000 72,000 Net income before taxes 400,000 280,000 Income taxes (30%) 120,000 84,000 Net income 280,000 196,000 Common dividends 110,000 95,000 Net income retained 170,000 101,000 Beginning retained earnings 680,000 579,000 Ending retained earnings $ 850,000 $ 680,000 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, 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 $250,000.) 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.) L. The aciu-lest ratio. (Ruunu your answers iu z Uecial places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $250,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) e. The average sale period. (The inventory at the beginning of last year totaled $500,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) f. The operating cycle. (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.) g. The total asset turnover. (The total assets at the beginning of last year were $2,420,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) 1. 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 $1,420,000.) (Round your answers to 2 decimal places.) Show less This Year 720,000 Last Year 660,000 1.90 0.69 28.5 days 73.0 days a. Working capital b. Current ratio c. Acid-test ratio d. Average collection period e. Average sale period f. Operating cycle g. Total asset turnover h. Debt-to-equity ratio i. Times interest eamed ratio j. Equity multiplier days 2.53 1.09 23.0 days days 81.0 days 1.78 0.72 4.89 1.71 1.83 0.88 6.56 This Year Last Year Assets Current assets: Cash % % 0.0 0.0 0.0 % 0.0 % 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 equity % % 0.0 0.0 0.0 0.0 0.0 % 0.0 % ( Req1 Req 2B> Reg 1 Req 2A Req 2B Present the income statement in common-size format down through net income for both this year and last year. (Round your answers to 1 decimal place.) Last Year % Sabin Electronics Common-Size Income Statements This Year Sales % Cost of goods sold Gross margin 0.0 Selling and administrative expenses Net operating income 0.0 Interest expense Net Income before taxes 0.0 0.0 0.0 0.0 Income taxes Net income 0.0 % 0.0 % Reg 2A Req 28 )