Problem 16-19 (Algo) Financial Ratios for Assessing Profitability and Market Performance [LO16-5, LO16-6]

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 $690,000 longterm loan from Gulfport State Bank, $195,000 of which will be used to bolster the Cash account and $495,000 of which will be used to modernize equipment. The company's nancial statements for the two most recent years follow: Sabin Electronics Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 146,000 S 340,000 Marketable securities 0 16,000 Accounts receivable, net 724,000 490,000 Inventory 1,135,000 785,000 Prepaid expenses 38,000 41,000 Total current assets 2,043,000 1,672,000 Plant and equipment, net 2,229,400 1,480,000 Total assets S 4,272,400 $ 3,152,000 Liabilities and stockholders' Equity Liabilities: Current liabilities $ 895,000 $ 410,000 Bonds payable, 12% 850,000 850,000 Total liabilities 1,745,000 1,260,000 Stockholders' equity: Common stock, $ 20 par 880,000 880,000 Retained earnings 1,647,400 1,012,000 Total stockholders' equity 2,527,400 1,892,000 Total liabilities and stockholders' equity S 4,272,400 $ 3,152,000 Sabin Electronics Comparative Income Statement and Reconciliation Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5, 950 , 000 $ 4, 920, 000 Cost of goods sold 4 , 065, 000 3, 640, 000 Gross margin 1, 885 , 000 1, 280, 000 Selling and administrative expenses 691, 000 586 , 000 Net operating income 1, 194, 000 694 , 000 Interest expense 102 , 000 102, 000 Net income before taxes 1, 092, 000 592 , 000 Income taxes (308) 327 , 600 177 , 600 Net income 764 , 400 414 , 400 Common dividends 129 , 000 108 , 000 Net income retained 635 , 400 306 , 400 Beginning retained earnings 1, 012 , 000 705 , 600 Ending retained earnings $ 1, 647 , 400 $ 1, 012, 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. 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 $60 per share; last year it sold for $55 per share. c. The dividend payout ratio. d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 8) e. The book value per share of common stock. ? YouI dorido novt to access the romnanu's profitability Compute the following for hoth this voar and lact voar.2. You decide next to assess the company's protability. Compute the following for both this year and last year: a. The gross margin percentage. b. The net prot margin percentage. c. The return on total assets. (Total assets at the beginning of last year were $3,112,000.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,882,000.) e. Is the company's nancial leverage positive or negative? Complete this question by entering your answers in the tabs below. Required 1 Required 2 You decide rst 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. (Round your answers to 2 decimal places.) b. The dividend yield ratio. The company's stock is currently selling for $60 per share; last year it sold for $55 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place.) c. The dividend payout ratio. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place.) d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 8.) (Do not round intermediate calculations. Round your answers to 2 decimal places.) e. The book value per share of common stock. (Round your answers to 2 decimal places.) Show lessA 8. Earnings per share b. Dividend yield ratio Required 1 Required 2 You decide rst 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. (Round your answers to 2 decimal places.) b. The dividend yield ratio. The company's stock is currently selling for $60 per share; last year it sold for $55 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place.) c. The dividend payout ratio. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place.) d. The price-earnings ratio. (Assume that the industry norm for the price-earnings ratio is 8.) (Do not round intermediate calculations. Round your answers to 2 decimal places.) e. The book value per share of common stock. (Round your answers to 2 decimal places.) Show IessA b. Dividend yield ratio c. Dividend payout ratio d. Price-earnings ratio Required 2 > Required 1 Required2 You decide next to assess the company's protability. 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 prot 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 $3,112,000.) (Round your percentage answers to 1 decimal place.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,882,000.) (Round your percentage answers to 1 decimal place.) e. Is the company's financial leverage positive or negative? Show IessA b. Net prot margin percentage c. Return on total assets d. Return on equity