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 This Year Last Year $ 104,000 0 594,000 1,035,000 26,000 1,759,000 1,751,000 $ 3,510,000 $ 240,000 27,000 390,000 685,000 31,000 1,373,000 1,420,000 $ 2,793,000 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 $ $ 845,000 700,000 1,545,000 520,000 700,000 1,220,000 780,000 1,185,000 1,965,000 $ 3,510,000 780,000 793,000 1,573,000 $ 2,793,000

Additional information from part 1 of the question:

Answer 1

			This Year	Last Year
a	Gross margin percentage	Gross Margin / Sales	1,485,000 / 5,450,000	27.2%	1,080,000 / 4,620,000	23.4%
b	Net profit margin percentage	Net Income / Sales	511,000 / 5,450,000	9.4%	301,000 / 4,620,000	6.5%
c	Return on total assets	Net Income / Average Total Assets	511,000 / (3,510,000 + 2,793,000)/2	16.2%	301,000 / (2,570,000 + 2,793,000)/2	11.2%
d	Return on equity	Net Income / Average Stockholders' Equity	511,000 / (1,965,000 + 1,573,000)/2	28.9%	301,000 / (1,563,000 + 1,573,000)/2	19.2%
e	Financial Leverage	Net operating Income / Net operating income - Interest	Before tax - POSITIVE After tax - POSITIVE	1.12	Before tax - NEGATIVE After tax - POSITIVE	1.20
				It has slightly come down