You have just been hired as a loan officer at San Diego State Bank. Your supervisor has given you a file containing a request from Mobile Company, a manufacturer of auto components, for a $1,000,000 five-year loan. Financial statement data on the company for the last two years are given below:

Mobile Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 267,400 $ 342,100 Marketable securities 0 117,000 Accounts receivable, net 940,000 643,000 Inventory 1,357,000 757,000 Prepaid expenses 101,200 86,200 Total current assets 2,665,600 1,945,300 Plant and equipment, net 3,453,800 3,109,400 Total assets $ 6,119,400 $ 5,054,700 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 1,278,800 $ 764,400 Bonds payable 1,316,000 1,116,000 Total liabilities 2,594,800 1,880,400 Stockholders' equity: Preferred stock, 8%, $30 par value 600,000 600,000 Common stock, $40 par value 2,000,000 2,000,000 Retained earnings 924,600 574,300 Total stockholders' equity 3,524,600 3,174,300 Total liabilities and stockholders' equity $ 6,119,400 $ 5,054,700

Mobile Company Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,508,000 $ 4,328,000 Cost of goods sold 4,124,000 3,214,000 Gross margin 1,384,000 1,114,000 Selling and administrative expenses 548,000 528,000 Net operating income 836,000 586,000 Interest expense 137,000 117,000 Net income before taxes 699,000 469,000 Income taxes (30%) 209,700 140,700 Net income 489,300 328,300 Dividends paid: Preferred stock 48,000 48,000 Common stock 91,000 67,000 Total dividends paid 139,000 115,000 Net income retained 350,300 213,300 Retained earnings, beginning of year 574,300 361,000 Retained earnings, end of year $ 924,600 $ 574,300

Loretta Young, who just two years ago was appointed president of Mobile Company, admits that the company has been inconsistent in its performance over the past several years. But Young argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 27% increase in sales over the last year. Young also argues that investors have recognized the improving situation at Mobile Company, as shown by the jump in the price of its common stock from $42.00 per share last year to $54.00 per share this year. Young believes that with strong leadership and with the modernized equipment that the $1,000,000 loan will enable the company to buy, profits will be even stronger in the future.

Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Mobiles industry:

Current ratio 2.3 Acid-test ratio 1.2 Average collection period 31 days Average sale period 60 days Return on assets 9.5 % Debt-to-equity ratio 0.65 Times interest earned 5.7 Price-earnings ratio 10

Required:

1.

You decide first to assess the rate of return that the company is generating. Compute the following for both this year and last year:

a.

The return on total assets. (Total assets at the beginning of last year were $4,396,000.) (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3.)

Return on total assets: This year | Last Year

% %

b.

The return on common stockholders equity. (Stockholders' equity at the beginning of last year totaled $4,519,185. There has been no change in preferred or common stock over the last two years.) (Do not round your intermediate calculations. Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3.)

Return on common stockholder's equity: This year | Last year

% %

c.

Is the companys financial leverage positive or negative?

This year: Positive

Last year: negative

2.	You decide next to assess the well-being of the common stockholders. For both this year and last year, compute:

a.

The earnings per share. (Round your answers to 2 decimal places.)

Earnings per share: This year | Last year

b.

The dividend yield ratio for common stock. (Round your intermediate calculations to 2 decimal places and and your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3.)

Dividend yield ratio: This year | Last year

c.

The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3.)

Dividend payout ratio: This year | Last year

d.

The price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)

Price-earnings ratio : This year | Last year

_______ times . ________ times

e.	The book value per share of common stock. (Round your answers to 2 decimal places.)
	Book value per share: This year | Last year