Question

Paul Sabin organized Sabin Electronics 10 years ago to produce and se 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 $150.000 of which w e used to bolster the Cash account and $450,000 of which will be used to modernize equipment. The company's financial statements for the two most recent years follow Last Year $250,000 28,000 400,000 695,000 32.000 1,405,000 1,470,000 $2.875.000 Sabin Electronics Comparative Balance Sheet This Year Assets Current assets Cash $ 110,000 Marketable securities Accounts receivable, net 607,000 Inventory 1,045,000 Prepaid expenses 30.000 Total current assets 1,792,000 Plant and equipment, net 1,946,400 Total assets $3.738.400 Liabilities and Stockholders Equity Liabilities: Current abilities $ 850,000 Bonda payable, 128 750,000 Total liabilities 1,600,000 Stockholders' equity: Common stock, $15 par 790,000 Retained earnings 1.340400 Total stockholders' equity 2,138,400 Total liabilities and $3,738, 400 stockholdersequity $ 400,000 750,000 1,150,000 790,000 95.000 1,725,000 $2,875,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year $5,500,000 $4,650,000 Cost of goods sold 3,975,000 3,550,000 Gros margin 1,525,000 1,100,000 Selling and administrative 673,000568,000 expenses Net operating income 852,000 $32,000 Interest expense 90,000 90,000 Net Income before taxes 762.000 442,000 Income taxes (305) 229600 132,600 Net Income 533,400 309,400 Common dividends 120.000 99,000 Not income retained 413.400 210,400 Beginning retained earnings 935,000 Ending retained earnings $1,348,400 $ 95.000 724.600 During the past year, the company introduced several new productes and raised the sel ng prices on a number 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,n30. All sales are on account

Answer 1

Sabin Electronics
Common Size Balance Sheet
	This Year	Percent	Working	Last Year	Percent	Working
Assets
Cash	$               1,10,000.00	3%	($110000/$3738400)	$                              2,50,000.00	9%	($250000/$2875000)
Marketable Securities	$                                  -	0%		$                                  28,000.00	1%	($28000/$2875000)
Accounts Receivable	$               6,07,000.00	16%	($607000/$3738400)	$                              4,00,000.00	14%	($400000/$2875000)
Inventories	$             10,45,000.00	28%	($1045000/$3738400)	$                              6,95,000.00	24%	($695000/$2875000)
Prepaid expenses	$                   30,000.00	1%	($30000/$3738400)	$                                  32,000.00	1%	($32000/$2875000)
Total Current Assets=(A)	$             17,92,000.00	48%	($1792000/$3738400)	$                            14,05,000.00	49%	($1405000/$2875000)
Net Property,Plant & Equipment=(B)	$             19,46,400.00	52%	($1946400/$3738400)	$                            14,70,000.00	51%	($1470000/$2875000)
Total Assets=(A)+(B)	$             37,38,400.00	100%	($3738400/$3738400)	$                            28,75,000.00	100%	($2875000/$2875000)
Liabilities & Stockholder's Equity
Current Liabilities	$               8,50,000.00	23%	($850000/$3738400)	$                              4,00,000.00	14%	($400000/$2875000)
Bonds Payable 12%	$               7,50,000.00	20%	($750000/$3738400)	$                              7,50,000.00	26%	($750000/$2875000)
Total Liabilities=(C )	$             16,00,000.00	43%	($1600000/$3738400)	$                            11,50,000.00	40%	($1150000/$2875000)
Stockholder's Equity					0%
Common Stock	$               7,90,000.00	21%	($790000/$3738400)	$                              7,90,000.00	27%	($790000/$2875000)
Retained Earnings	$             13,48,400.00	36%	($1348400/$3738400)	$                              9,35,000.00	33%	($935000/$2875000)
Total Stockholder's Equity=(D)	$             21,38,400.00	57%	($2138400/$3738400)	$                            17,25,000.00	60%	($1725000/$2875000)
Total Liabilities & Stockholder's Equity=(C)+(D)	$             37,38,400.00	100%	($3738400/$3738400)	$                            28,75,000.00	100%	($2875000/$2875000)
	Sabin Electronics
	Common Size Income Statement
	This Year	Percent		Working	Last Year
Sales	$             55,00,000.00	100.00	%	($5500000/$5500000)*100	$     46,50,000.00	100.00
Cost of goods sold	$             39,75,000.00	72.27	%	($3975000/$5500000)*100	$     35,50,000.00	76.34
Gross Margin	$             15,25,000.00	27.73	%	($1525000/$5500000)*100	$     11,00,000.00	23.66
Selling & Administrative Expenses	$               6,73,000.00	12.24	%	($673000/$5500000)*100	$        5,68,000.00	12.22
Net operating income	$               8,52,000.00	0.15	%	($852000/$5500000)*100	$        5,32,000.00	0.11
Interest Expense	$                   90,000.00	0.02	%	($90000/$5500000)*100	$           90,000.00	0.02
Income Before Taxes	$               7,62,000.00	13.85	%	($762000/$5500000)*100	$        4,42,000.00	9.51
Income Tax Expense	$               2,28,600.00	0.04	%	($228600/$5500000)*100	$        1,32,600.00	0.03
Net Income	$               5,33,400.00	9.70	%	($533400/$5500000)*100	$        3,09,400.00	6.65