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 $660,000 long-term loan from Gulfport State Bank, $180,000 of which will be used to bolster the Cash account and $480,000 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
Assets:	This Year		Last Year
Cash	128,000		310,000
Marketing securities	0		13,000
Accounts recievable, net	685,000		460,000
Inventory	1,105,000		755,000
Prepaid expenses	$34,000		38,000
Total current assets	1,952,000		1,576,00
Plant & equipment ,net	2,061,000		1,450,000
Total assets	4,013,000		3,026,000
Liabilities and Stock holders Equity
Current Liabilities	$880,000		$460,000
Common Stock	750,000		750,000
retained Earnings	1,633,000		1,210,000
Total Stockholders equity	2,383,000		1,816,000
Total Liabilities & equity	$4,013,000		3,026,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	5,800,000		4,830,000
Vost of Goods Sold	4,035,000		3,610,000
Gross Margin	1,765,000		1,220,000
Selling & Administrative expeses	685,000		580,000
Net operating Income	$1,080,000		640,000
Interest expense	90,000		90,000
Net income before taxes	990,000		550,000
Income taxes (30%)	297,000		165,000
Net Income	693,000		385,000
Common Dividends	126,000		105,000
Net Income retained	567,000		280,000
beginning retained earnings	1,066,000		786,000
Ending retained earnings	1,633,000		1,066,000

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.

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. (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 $410,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)

e.

The average sale period. (The inventory at the beginning of last year totaled $660,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)

f.

The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)

g.

The total asset turnover. (The total assets at the beginning of last year were $2,986,000.) (Round your answers to 2 decimal places.)

.

h.The debt-to-equity ratio. (Round your answers to 3 decimal places.)

i.

The times interest earned ratio. (Round your answers to 1 decimal place.

j.

The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,806,000.) (Round your answers to 2 decimal places.)

2.	For both this year and last year:

a.

Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

b.	Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Answer 1

a./ working Capital = Current Assets - Current Liabilities, here CA = $ 1952000 and CL = $ 880000,

Therefore, WC = $ 1072000

b. Current Ratio = Current Assets / Current Liabilites, Therefore CR = 2.218

c. Acid Test Ratio = (Cash + Accounts Receivable + Short-term Investments) / Current Liabilities.

= $ 847000/$880000 = 0.9625

d. Average Collection Period = Avg AR / Credit Sales * 365 = 36.02 days

e. Avg Sales Period = 365 / Inventory Turnover

Inventory Turnover = Cost of Goods Sold / Average Inventory = $ 4035000 / $ 930000 = 4.33 days

NOTE: An expert here is allowed to answer initital 4 sub parts in case of multi part qtns. Please give a like if you find the above 5 answers helpful. Thanks