Paul Sabin organized Sabin Electronics 10 years ago in order 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 certain key items of equipment. The company's financial statements for the two most recent years follow: This Year Last Year $ 70,400 SABIN ELECTRONICS Comparative Balance Sheet Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Shareholders' equity: Preferred shares, no par ($6; 21,520 shares issued) Common shares, no par (unlimited authorized, 32,000 issued) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 495, 800 995,000 19,800 1,581,000 1,200,000 $2,781,000 124,000 15,200 248,000 496,000 17,800 901,000 1,149,000 $ 2,050,000 $ 828,000 400,000 1,228,000 583,000 400,000 983,000 269,000 320,000 964,000 1,553,000 $2,781,000 269,000 320,000 478,000 1,067,000 $ 2,050,000 Last Year $ 4,150,000 3,280,000 870,000 676,000 517,000 SABIN ELECTRONICS Comparative Income Statement This Year Sales $ 5,200,000 Less: Cost of goods sold 3,987,000 Gross margin 1,213,000 Less: Operating expenses Net operating income 537,000 Less: Interest expense 48,000 Net income before taxes 489,000 Less: Income taxes (30%) 146,700 Net income 342, 300 Dividends paid: Preferred dividends 20,000 Common dividends 93,600 Total dividends paid 113,600 Net income retained 228,700 Retained earnings, beginning of year 640,000 Retained earnings, end of year 868, 700 353,000 48,000 305,000 91,500 213,500 20,000 71,200 91,200 122,300 517,700 640,000 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 that the following ratios are typical of firms in the electronics industry: Current ratio Acid-test (quick) ratio Average age of receivables Inventory turnover in days Debt-to-equity ratio Times interest earned Return on total assets Price-earnings ratio 2.5 to 1 1.3 to 1 18 days 60 days 0.90 to 1 6.0 times 13% 12 Required: 1. To assist the Gulfport Bank in making a decision about the loan, compute the following ratios for both this year and last year (Use 365 days a year. Round your intermediate calculations to 1 decimal place. Round Debt-to-equity ratio to 3 decimal places and other answers to 2 decimal places.): a. The amount of working capital. b. The current ratio. c. The acid-test (quick) ratio. d. The average age of receivables (the accounts receivable at the beginning of last year totalled $246,000). e. The inventory turnover in days (the inventory at the beginning of last year totalled $492,000). f. The debt-to-equity ratio. g. The times interest earned. Working capital Current ratio Acid-test ratio Average age of receivables Inventory turnover in days Debt-to-equity ratio Times interest earned Answer is not complete. This Year Last Year $ 753,000 $ 318,000 1.91 to 1 1.55 to 1 0.68 to 1 0.66 to 1 26.10 days days days to 1 to 1 days times times 2. For both this year and last year: (a) Present the balance sheet in common-size format. (Leave no cells blank - be certain to enter "O" wherever required. Round your answers to 1 decimal place.) X Answer is not complete. SABIN ELECTRONICS Common-Size Balance Sheets This Year Last Year Current assets: Cash % % 0.0 % 0.0 % % % Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Current liabilities Bonds payable, 12% Total liabilities Shareholders' equity: Preferred shares, no par, $6 Common shares, no par Retained earnings Total shareholders' equity Total liabilities and equity 0.0 0.0 0.0 0.0 0.0 0.0 % % (b) Present the income statement in common-size format down through net income. (Input all values as positive values. Round your answers to 1 decimal place.) Last Year % SABIN ELECTRONICS Common-Size Balance Sheets This Year Sales % Less cost of goods sold Gross margin Less operating expenses Net operating income Less interest expense Net income before taxes Less income taxes Net income % %