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 $670.000 long-term loan from Gulfport State Bank, $185.000 of which will be used to bolster the Cash account and $485.000 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 Assets Current assets: Cash $ 133,eee $ 328,eee Marketable securities 14, eee Accounts receivable, net 698,eee 478,eee Inventory 1,115,eee 765, eee Prepaid expenses 34,00 39,eee Total current assets 1,998,eee 1,6e8,eee Plant and equipment, net 2,815,600 1,388,eee Total assets $ 3,995,6ee $ 2,988,600 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 885, eee $ 470, eee Bonds payable, 12% 758,eee 758,eee Total liabilities 1,635, eee 1,220, eee Stockholders' equity: Connon stock, $20 par 860.ece 860.eee Retained earnings 1,500, 600 9e8,eee Total stockholders' equity 2,368,600 1,768,eee Total liabilities and stockholders' equity $ 3,995,600 $ 2,988,600 Last Year $ 4,860,000 3,628,eee 1,248,eee 582.ee 658,eee Sabin Electronics Comparative Income Statement and Reconciliation This Year Sales $ 5,850, eee Cost of goods sold 4.645,eee Gross margin 1,8es, eee Selling and administrative expenses 687.000 Net operating income 1,118,600 Inter expense 0.000 Net income before taxes 1,628,eee Income taxes (30%) 3e8, 4ee Net Income 719,60 Connon dividends 127.800 Net income retained 592,600 Beginning retained earnings 9e8,eee Ending retained earnings $ 1,500, 600 568,eee 170,400 397.6ee 186.000 291,600 616,400 9e8,eee 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: 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: c. The return on total assets. (Total assets at the beginning of last year were $2948.000.) d. The return on equity. (Stockholders' equity at the beginning of last year was $1,758.000.)
