Question

                                                                                                           This Year         Last Year

Working capital = Current assets - Current liabilities                       720,000           660,000

Current ratio = Current assets / Current liabilities                            1.9                  2.53

Acid test ratio = (Current Assets-Inv-prepaid)/ Current liabilities    0.68.75           1.088

Average collection period=365/Receivable turnover (in days)      28.47 days        23.07 days

Average sale period                                                                           73 days           58.21 days

Debt to equity ratio                                                                          0.875               0.72

times interest earned ratio                                                               6.56                4.89

3. Paul Sabin has also gathered the following financial data and ratios that are typical of companies in the electronics industry:

Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5

Acid-test ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3

Average collection period . . . . . . . . . . . . . . . . . . 18 days

Average sale period . . . . . . . . . . . . . . . . . . . . . . 60

days Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . . 0.90

Times interest earned ratio . . . . . . . . . . . . . . . . 6.0

Comment on the results of your analysis in (1) and (2) above and compare Sabin Electronics’ performance to the benchmarks from the electronics industry. Do you think that the company is likely to get its loan application approved?

Answer 1

Hello Dear,

Hope you are also doing well.

I have tried to give best possible answer. If you have any doubts, please mention in comment section. I'll definitely respond back as early possible.

And please excuse my bad handwriting.

. Ans: * Comment on the analysis of result of current year with previous year : * Current ratio has reduced to 1.9 from 2153 of previous year, which shows that either current asset has been decreased on current liability has been - increased in both scenario the company's performance - has been decreased y Acid test ratio has also reduced last year, which is indicating that is in danger. to 0.68 from 1.088 of the liquidity position A * Average collection period has increased to 28.47 days from 23.07 days of last year, which is showing the incapability of the company to collect the money.

to Average sales period increased to 7 day from - 58.21 days, representing the inefficiency of the company to sell the producte. to Debt to equity ratio is also increased to 0.875 from 0.72 of last year. It shows that the company has borrowed encessively from last year, which is not a good sign for the company. * Interest earned ratio increased to 6.56 times from 4.89 times of last year. This is the good Sign from the company as the earning beforce interest and tan is increased from last year. * Comparision of Sabin Electronics penformance to the Industry - benchmark : & current ratio of 1.9 is far lesser than the 2.5 of industry benchmark, which is a very bad sign. for the company to pay its current liability

y Acid test ratio of 0.6875 is also fare lesser than •3 a hugеrу benchmапқ, ohich is a bad symbo? for the company to screvive from its short term - liquidity. & Average collection period its of 28·47 days is also higher than 18 days of industry benchmarus . It means the company is inefficient to collect payment with respect to the indu & Debt to equity reatio of 0.875 timer is lesser than 0.90 times of industry benchmars. It is a good sign for the company, that the company has taken lower borrowing as compared to industry. Interest earned ratio of 6.56 is also higher than the 60 of industruy benchmark. Again it is also a good sign for the company that they are managed to generate monce earnings fort interest expense

# I think that the company is likery loan application approved because the to loan get its provider Check two to three ratio which are : & Debt to Equity ratio : Where the company's performance is good as compared to Industry benchmar : interest earned ratio : Again the company's perform is good as compared to industry - bench maris: - & current ratio : In this section the company has not performed very well, but it can be considered for the loon approval, because other two ratio's are performed well.

Thanks Dear, Have a Wonderful Day.