Answered You can hire a professional tutor to get the answer.
Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents.
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 $700,000 long-term loan from Gulfport State Bank, $200,000 of which will be used to bolster the Cash account and $500,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
Sabin ElectronicsComparative Balance Sheet This YearLast Year Assets Current assets: Cash$150,000$350,000 Marketable securities 0 17,000 Accounts receivable, net 737,000 500,000 Inventory 1,145,000 795,000 Prepaid expenses 38,000 42,000 Total current assets 2,070,000 1,704,000 Plant and equipment, net 2,300,800 1,530,000 Total assets$4,370,800$3,234,000 Liabilities and Stockholders Equity Liabilities: Current liabilities$900,000$420,000 Bonds payable, 12% 900,000 900,000 Total liabilities 1,800,000 1,320,000 Stockholders' equity: Common stock, $15 par 870,000 870,000 Retained earnings 1,700,800 1,044,000 Total stockholders’ equity 2,570,800 1,914,000 Total liabilities and equity$4,370,800$3,234,000
Sabin ElectronicsComparative Income Statement and Reconciliation This YearLast Year Sales$6,000,000$4,950,000 Cost of goods sold 4,075,000 3,650,000 Gross margin 1,925,000 1,300,000 Selling and administrative expenses 693,000 588,000 Net operating income 1,232,000 712,000 Interest expense 108,000 108,000 Net income before taxes 1,124,000 604,000 Income taxes (30%) 337,200 181,200 Net income 786,800 422,800 Common dividends 130,000 109,000 Net income retained 656,800 313,800 Beginning retained earnings 1,044,000 730,200 Ending retained earnings$1,700,800$1,044,000
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 3/10, n/30. All sales are on account.
Required:1.To assist in approaching the bank about the loan, Paul has asked you to compute the following ratios for both this year and last year:
a.The amount of working capital.
b.The current ratio.
c.The acid-test ratio.
d.The average collection period. (The accounts receivable at the beginning of last year totaled $450,000.)
e.The average sale period. (The inventory at the beginning of last year totaled $700,000.)
f.The operating cycle
g.The total asset turnover. (The total assets at the beginning of last year were $3,194,000.)
h.The debt-to-equity ratio.
i.The times interest earned ratio.
j.The equity multiplier.(The total stockholders’ equity at the beginning of last year totaled $1,904,000.)
