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 $590,000 long-term loan from Gulfport State Bank, $145,000 of which will be used to bolster the Cash account and $445,000 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 Reg 1 Req 2A Req 2B This Year Last Year Current assets: 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: $ 104,000 $ Marketable securities Accounts receivable, net 240,000 27,000 390,000 605,000 594,000 1.035,000 26.000 1,759,000 1,751,000 $3.510,000 1,323,000 1, 420,000 $2.793.000 $ 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, S15 par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ a. The amount of working capital. b. The current ratio. (Round your answers to 2 decimal places.) c. The acid-test ratio. (Round your answers to 2 decimal places.) d. The average collection period. (The accounts receivable at the beginning of last year totaled $340,000.) (Round your intermediate calculations and final answers to 2 decimal place. Use 365 days in a year.) e. The average sale period. (The inventory at the beginning of last year totaled $590,000.) (Round your intermediate calculations and final answers to 2 decimal place. Use 365 days in a year.) f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place. Use 365 days in a year.) g. The total asset turnover. (The total assets at the beginning of last year were $2,690,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) . The times interest eamed ratio. (Round your answers to 2 decimal places.) j. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1,563,000.) (Round your answers to 2 decimal places.) Show less $45.000 700,000 1,545,000 520,000 700,000 1,220,000 780,000 1,105,000 1,965,000 $ 3,510,000 780,000 793,000 1,573,000 $2,799,000 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. This Year Last Year 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 $340,000) e. The average sale period. (The inventory at the beginning of last year totaled $590,000.) f. The operating cycle. 9. The total asset turnover (The total assets at the beginning of last year were $2,690,000.) h. The debt-to-equity ratio. The times interest earned ratio. į. The equity multiplier. (The total stockholders' equity at the beginning of last year totaled $1.563,000.) Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year $5,450,000 $4,620,000 Cost of goods sold 3, 965,000 3,540,000 Gross margin 1, 405,000 1.000.000 Selling and administrative expenses 671.000 566,000 Net operating income 814,000 514,000 84.000 84.000 Net income before taxes 730,000 430,000 Income taxes (305 219,000 129,000 511,000 301.000 Comon dividenda 119,000 98.000 Net income retained 392,000 205,000 Beginning retained earnings 793,000 590,000 Ending retained earnings $1,185,000 6 793, 000 days a Working capital ſ b. Current ratio c. Acid-test ratio d. Average collection period e. Average sale period f Operating cycle 9 Total asset turnover h. Debt-to-equity ratio i. Times interest earned ratio i Equity multiplier days days days days days 2. For both this year and last year: a. Present the balance sheet in common-size format. b. Present the income statement in common-size format down through net income.

Answer 1

			This Year		Last Year
a.	Working Capital	Current Assets - Current Liabilities	$ 914,000		$ 853,000
b.	Current Ratio	Current Assets / Current Liabilities	2.08 : 1		2.64 : 1
c.	Acid Test Ratio	( Cash + Marketable Securities + Accounts Receivable ) / Current Liabilities	0.83 : 1		1.26 : 1
d.	Average Collection Period	( 365 / Sales ) * Average Accounts Receivable	32.95	days	28.84	days
e.	Average Sale Period	( 365 / Cost of Goods Sold ) * Average Inventory	79.17	days	65.73	days
f.	Operating Cycle	Average Collection Period + Average Sale Period	112.12	days	94.57	days
g.	Total Asset Turnover	Sales / Average Total Assets	1.73		1.69
h.	Debt to Equity ratio	Total Labilities / Total Assets	0.79		0.78
i.	Times Interest Earned	Net Operating Income / Interest Expense	9.69	times	6.12	times
j.	Equitty Multiplier	Average Total Assets / Average Stockholders' Equity	1.78		1.75