Question

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 $680,000 long-term loan from Gulfport State Bank, $190,000 of which will be used to bolster the Cash account and $490,000 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 $ 135,000 711,000 1,125,000 38,000 2,009,000 2,245,000 $ 4,254,000 $ 330,000 15,000 480,000 775,000 40,000 1,640,000 1,550,000 $ 3,190,000 Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity Liabilities: Current liabilities Bonds payable, 12% Total liabilities Stockholders' equity: Common stock, $15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ 850,000 800,000 1,650,000 400,000 800,000 1,200,000 870,000 1,734,000 2,604,000 $ 4,254,000 870,000 1,120,000 1,990,000 $ 3,190,000

Answer 1

Answer:

1.a.Earning per share = Net Income / No. of outstanding shares

This Year = 742000 / ( 870000 / 15 ) = 742000 / 58000 = $12.79

Last Year = 406000 / ( 870000 / 15 ) = 406000 / 58000 = $7

1.b.Dividend Yield Ratio = Dividend per share / Market price per share

This Year = (128000 / 58000 ) / 55 = 4.01%

Last Year = (107000 / 58000 ) / 50 = 3.69%

1.c.Dividend payout ratio = Common Dividend / Net Income

This Year = 128000 / 742000 = 17.25%

Last Year = 107000 / 406000 = 26.35%

1.d.Price Earnings Ratio = Market price per share / Earning per share

This Year = 55 / 12.79 = 4.3

Last Year = 50 / 7 = 7.14

1.e.Book Value per share = Total Stockholders Equity / No. of outstanding shares

This Year = 2604000 / 58000 = $44.90

Last Year = 1990000 / 58000 = $34.31

2.a.Gross Margin Percentage = Gross Profit / Sales

This Year = 1845000 / 5900000 = 31.27%

Last Year = 1260000 / 4890000 = 25.77%

2.b.Net Profit Margin Percentage = Net Income / Sales

This Year = 742000 / 5900000 = 12.58%

Last Year = 406000 / 4890000 = 8.30%

2.c.Return on Total Assets = Net Income / Avg. Total Assets

This Year = 742000 / ( 4254000 + 3190000) / 2 = 742000 / 3722000 = 19.94%

Last Year = 406000 / ( 3190000 + 3150000 ) / 2 = 406000 / 3170000 = 12.81%

2.d.Return on Equity = Net Income / Avg. Total Stockholders Equity

This Year = 742000 / ( 2604000 + 1990000 ) / 2 = 742000 / 2297000 = 32.3%

Last Year = 406000 / ( 1990000 + 1980000 ) / 2 = 406000 / 1985000 = 20.45%

2.e.Financial Leverage = Total Debt / Total Stockholders Equity

This Year = 1650000 / 2604000 = 63.36%

Last Year = 1200000 / 1990000 = 60.3%