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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 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 Assets Current assets: Cash $ 110,000 $ 250,000 Marketable securities 0 28,000 Accounts receivable, net 607,000 400,000 Inventory 1,045,000 695,000 Prepaid expenses 30,000 32,000 Total current assets 1,792,000 1,405,000 Plant and equipment, net 1,946,400 1,470,000 Total assets $ 3,738,400 $ 2,875,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 850,000 $ 400,000 Bonds payable, 12% 750,000 750,000 Total liabilities 1,600,000 1,150,000 Stockholders' equity: Common stock, $15 par 790,000 790,000 Retained earnings 1,348,400 935,000 Total stockholders’ equity 2,138,400 1,725,000 Total liabilities and stockholders' equity $ 3,738,400 $ 2,875,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,500,000 $ 4,650,000 Cost of goods sold 3,975,000 3,550,000 Gross margin 1,525,000 1,100,000 Selling and administrative expenses 673,000 568,000 Net operating income 852,000 532,000 Interest expense 90,000 90,000 Net income before taxes 762,000 442,000 Income taxes (30%) 228,600 132,600 Net income 533,400 309,400 Common dividends 120,000 99,000 Net income retained 413,400 210,400 Beginning retained earnings 935,000 724,600 Ending retained earnings $ 1,348,400 $ 935,000 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 2/10, n/30. All sales are on account. 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: REQUIRED 1 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 $350,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $600,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year were $2,790,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) i. The times interest earned ratio. (Round your answers to 2 decimal places.) j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,715,000.) (Round your answers to 2 decimal places.) This Year Last Year a. Working capital b. Current ratio c. Acid-test ratio d. Average collection period days days e. Average sale period days days f. Operating cycle days days g. Total asset turnover h. Debt-to-equity ratio i. Times interest earned ratio j. Equity multiplier

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 $600,000 long-term loan from Gulfport State Bank, $150,000 of which will be used to bolster the Cash account and $450,000 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 Assets Current assets: Cash $ 110,000 $ 250,000 Marketable securities 0 28,000 Accounts receivable, net 607,000 400,000 Inventory 1,045,000 695,000 Prepaid expenses 30,000 32,000 Total current assets 1,792,000 1,405,000 Plant and equipment, net 1,946,400 1,470,000 Total assets $ 3,738,400 $ 2,875,000 Liabilities and Stockholders Equity Liabilities: Current liabilities $ 850,000 $ 400,000 Bonds payable, 12% 750,000 750,000 Total liabilities 1,600,000 1,150,000 Stockholders' equity: Common stock, $15 par 790,000 790,000 Retained earnings 1,348,400 935,000 Total stockholders’ equity 2,138,400 1,725,000 Total liabilities and stockholders' equity $ 3,738,400 $ 2,875,000 Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales $ 5,500,000 $ 4,650,000 Cost of goods sold 3,975,000 3,550,000 Gross margin 1,525,000 1,100,000 Selling and administrative expenses 673,000 568,000 Net operating income 852,000 532,000 Interest expense 90,000 90,000 Net income before taxes 762,000 442,000 Income taxes (30%) 228,600 132,600 Net income 533,400 309,400 Common dividends 120,000 99,000 Net income retained 413,400 210,400 Beginning retained earnings 935,000 724,600 Ending retained earnings $ 1,348,400 $ 935,000 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 2/10, n/30. All sales are on account. 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: REQUIRED 1 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 $350,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) e. The average sale period. (The inventory at the beginning of last year totaled $600,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.) g. The total asset turnover. (The total assets at the beginning of last year were $2,790,000.) (Round your answers to 2 decimal places.) h. The debt-to-equity ratio. (Round your answers to 2 decimal places.) i. The times interest earned ratio. (Round your answers to 2 decimal places.) j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,715,000.) (Round your answers to 2 decimal places.) This Year Last Year a. Working capital b. Current ratio c. Acid-test ratio d. Average collection period days days e. Average sale period days days f. Operating cycle days days g. Total asset turnover h. Debt-to-equity ratio i. Times interest earned ratio j. Equity multiplier

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Sabin Electronics
Comparative Balance Sheet
	This Year	Last Year
Assets
Current assets:
Cash	$	110,000	$	250,000
Marketable securities		0		28,000
Accounts receivable, net		607,000		400,000
Inventory		1,045,000		695,000
Prepaid expenses		30,000		32,000
Total current assets		1,792,000		1,405,000
Plant and equipment, net		1,946,400		1,470,000
Total assets	$	3,738,400	$	2,875,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	850,000	$	400,000
Bonds payable, 12%		750,000		750,000
Total liabilities		1,600,000		1,150,000
Stockholders' equity:
Common stock, $15 par		790,000		790,000
Retained earnings		1,348,400		935,000
Total stockholders’ equity		2,138,400		1,725,000
Total liabilities and stockholders' equity	$	3,738,400	$	2,875,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year	Last Year
Sales	$	5,500,000	$	4,650,000
Cost of goods sold		3,975,000		3,550,000
Gross margin		1,525,000		1,100,000
Selling and administrative expenses		673,000		568,000
Net operating income		852,000		532,000
Interest expense		90,000		90,000
Net income before taxes		762,000		442,000
Income taxes (30%)		228,600		132,600
Net income		533,400		309,400
Common dividends		120,000		99,000
Net income retained		413,400		210,400
Beginning retained earnings		935,000		724,600
Ending retained earnings	$	1,348,400	$	935,000

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 2/10, n/30. All sales are on account.

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:
REQUIRED 1
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 $350,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $600,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
f. The operating cycle. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year were $2,790,000.) (Round your answers to 2 decimal places.)
h. The debt-to-equity ratio. (Round your answers to 2 decimal places.)
i. The times interest earned ratio. (Round your answers to 2 decimal places.)
j. The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,715,000.) (Round your answers to 2 decimal places.)

		This Year	Last Year
a.	Working capital
b.	Current ratio
c.	Acid-test ratio
d.	Average collection period		days	days
e.	Average sale period		days	days
f.	Operating cycle		days	days
g.	Total asset turnover
h.	Debt-to-equity ratio
i.	Times interest earned ratio
j.	Equity multiplier

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