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: SABIN ELECTRONICS Comparative Balance Sheet This Year Last Year $ 62,600 439,400 881,000 18,000 1,401,000 1,080,000 $2,481,000 $ 106,000 12,800 212,000 424,000 15,400 770, 200 979,800 $ 1,750,000 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; 18,640 shares issued) Common shares, no par (unlimited authorized, 26,000 issued) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity $ $ 732,000 300,000 1,032,000 532,000 300,000 832,000 233,000 260,000 956,000 1,449,000 $2,481,000 233,000 260,000 425,000 918,000 $ 1,750,000 SABIN ELECTRONICS Comparative Income Statement This Year Sales $ 4,600,000 Less: Cost of goods sold 3,531,000 Gross margin 1,069,000 Less: Operating expenses 598,000 Net operating income 471,000 Less: Interest expense 36,000 Net income before taxes 435,000 Less: Income taxes (30%) 130,500 Net income 304,500 Dividends paid: Preferred dividends 20,000 Common dividends 82,800 Total dividends paid 102,800 Net income retained 201,700 Retained earnings, beginning of year 599,200 Retained earnings, end of year $ 800,900 Last Year $ 3,850,000 3,040,000 810,000 481,000 329,000 36,000 293,000 87,900 205,100 20,000 66,100 86,100 119,000 480, 200 599, 200 $ 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: 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 $210,000). e. The inventory turnover in days (the inventory at the beginning of last year totalled $420,000). f. The debt-to-equity ratio. g. The times interest earned. This Year Last Year Working capital Current ratio to 1 to 1 Acid-test ratio to 1 to 1 Average age of receivables Inventory turnover in days Debt-to-equity ratio days days to 1 days days to 1 Times interest earned 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.) SABIN ELECTRONICS Common-Size Balance Sheets This Year Last Year Current assets: Cash % % 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 % % (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.) SABIN ELECTRONICS Common-Size Balance Sheets This Year Last 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 % %