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 S670,000 long-term loan from Gulfport State Bank, $185,000 of which will be used to bolster the Cash account and $485,000 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 $ 133,000 698,000 1,115,000 34,000 1,980,000 2,015,600 $ 3,995,600 $ 320,000 14,000 470,000 765,000 39,000 1,600,000 1,380,000 $2.988.000 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, 128 Total liabilities Stockholders' equity: Common stock, $20 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 885,000 750,000 1,635,000 470,000 750,000 1,220,000 860.000 1,500, 600 2,360,600 $ 3,995,600 860,000 908,000 1,768,000 $2,988,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $5,850,000 $4,860,000 Cost of goods sold 4,045,000 3,620,000 Gross margin 1,805,000 1,240,000 Selling and administrative expenses 687,000 582,000 Net operating income 1,118.000 650.000 Interest expense 90.000 90,000 Net Income before taxes 1.028.000 568,000 Income taxes (305) 300, 400 170,400 Net Income 719,600 397,600 Common dividenda 127.000 106,000 Net Income retained 592,600 291,600 Beginning retained earnings 900,000 616,400 Ending retained earnings $1,500,600 $ 900,000

Answer 1

Answer is given below with all working notes

a This year Earning per share Net profit to Common stockholders Total Common shares $719,600 43,000 Last year $9.25 $397,600 43,000 $16.73 b This year Last year Dividend yield Divided per share Market price $2.95 $60.00 4.9% $2.47 $50.00 4.9% Dividend per share Dividend Number of Common shares Dividend per share $127,000 43,000 $2.95 $106,000 43,000 $2.47 C This year Last year Dividend payout ratio Dividend per share Earning per share $2.95 $16.73 17.6% $2.47 $9.25 26.7% d This year Last year Price-earning ratio Market price per share Earning per share $60.00 3.59 $50.00 $9.25 5.41 $16.737 e This year Last year Book value per share Stockholders' equity I Number of Common share $2,360,600 43,000 $54.90 $1,768,000 43,000 $41.12 a This year Last year Gross Margin Percentage Gross Profit Sales $1,805,000 $5,850,000 30.9% $1,240,000 $4,860,000 25.5% b This year Last year Net Profit Margin Net Profit Sales $719,600 $5,850,000 12.3% $397,600 $4,860,000 8.2% C This year Last year Return on Total Assets Net Profit Total Assets $719,600 $3,491,800 20.6% $397,600 $2,968,000 13.4% Average Total Assets Beginning balance Closing balance Average Total Assets This year $2,988,000 $3,995,600 $3,491,800 Last year $2,948,000 $2,988,000 $2,968,000 d This year Last year Return on Equity Net Profit Stockholders Equity $719,600 $2,064,300 34.9% $397,600 22.6% $1,763,000 Stockholders' equity Beginning balance Closing balance Average Stockholders' equity This year $1,768,000 $2,360,600 $2,064,300 Last year $1,758,000 $1,768,000 $1,763,000 e This year Last year Financial Leverage Net Operating Income Earnings before tax $1,118,000 $1,028,000 1.09 $658,000 $568,000 1.16 Financial leverage is positive