value 10.00 points Paul Sabin organized Sabin Electronics 10 years ago to produc
ID: 2574004 • Letter: V
Question
value 10.00 points 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 $650,000 long-term loan from Gulfport State Bank, $175,000 of which will be used to bolster the Cash account and $475,000 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 Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 130,000 $300,000 12,000 450,000 745,000 37,000 672,000 1,095,000 34,000 1,931,000 2,099,400 1,544,000 1,520,000 Total current assets Plant and equipment, net Total assets Liabilities and Stockholders Equity $4,030,400 $3,064,000 Liabilities Current liabilities Bonds payable, 12% $ 875,000 $450,000 750,000 750,000 Total liabilities 1,625,000 1,200,000 Stockholders' equity 720,000 1,685,400 720,000 Common stock, $15 par Retained earnings 1,144,000 1,864,000 $4,030,400 $3,064,000 Total stockholders' equity 2,405,400 Total liabilities and equity Sabin Electronics Comparative Income Statement and Reconciliation This Year Last Year Sales Cost of goods sold $5,750,000 $4,800,000 3,600,000 4,025,000 Gross margin Selling and administrative expenses 1,725,000 683,000 1,200,000 578,000 Net operating income Interest expense 1,042,000 90,000 622,000 90,000 Net income before taxes Income taxes (30%) 952,000 285,600 532,000 159,600Explanation / Answer
d
Average collection period:
This year
Last year
Opening Receivables
450000
400000
Closing Receivables
672000
450000
Average receivables
561000
425000
Net sales
5750000
4800000
Net sales/365
15753.42
13150.68
Average collection period
Average receivables/Net sales*365
35.6
32.2
days
days
e
Average sale period
Inventory in the beginning
745000
650000
Inventory in the closing
1095000
745000
Average inventory
920000
697500
Cost of goods sold
4025000
3600000
Inventory turnover
4.4
5.2
Average sale period
83.4
70.7
days
days
f
The operating cycle
Inventory period + Account receivable period
119.04
102.92
g
Total assets turnover
Assets in the beginning
3064000
3024000
Assets in the end
4030400
3064000
Average assets
3547200
3044000
Net sales
5750000
4800000
Sales/ Average assets
1.62
1.58
h
Debt to equity ratio
Total liabilities
1625000
1200000
Stockholders' equity
2405400
1864000
Total liabilities/ Stockholders' equity
0.68
0.64
i
Times interest earned ratio
Earnings before interest and taxation/interest expense
Ebit
1042000
622000
Interest expense
90000
90000
Times interest earned ratio
11.58
6.91
J
Equity Multiplier
Assets
4030400
3064000
Stock holder equity in the beginning
1854000
1864000
stock holder equity in the end
2405400
1854000
Average stockholder equity
2129700
1859000
Equity Multiplier
1.892
1.648
d
Average collection period:
This year
Last year
Opening Receivables
450000
400000
Closing Receivables
672000
450000
Average receivables
561000
425000
Net sales
5750000
4800000
Net sales/365
15753.42
13150.68
Average collection period
Average receivables/Net sales*365
35.6
32.2
days
days
e
Average sale period
Inventory in the beginning
745000
650000
Inventory in the closing
1095000
745000
Average inventory
920000
697500
Cost of goods sold
4025000
3600000
Inventory turnover
4.4
5.2
Average sale period
83.4
70.7
days
days
f
The operating cycle
Inventory period + Account receivable period
119.04
102.92
g
Total assets turnover
Assets in the beginning
3064000
3024000
Assets in the end
4030400
3064000
Average assets
3547200
3044000
Net sales
5750000
4800000
Sales/ Average assets
1.62
1.58
h
Debt to equity ratio
Total liabilities
1625000
1200000
Stockholders' equity
2405400
1864000
Total liabilities/ Stockholders' equity
0.68
0.64
i
Times interest earned ratio
Earnings before interest and taxation/interest expense
Ebit
1042000
622000
Interest expense
90000
90000
Times interest earned ratio
11.58
6.91
J
Equity Multiplier
Assets
4030400
3064000
Stock holder equity in the beginning
1854000
1864000
stock holder equity in the end
2405400
1854000
Average stockholder equity
2129700
1859000
Equity Multiplier
1.892
1.648
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