Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several
ID: 2491812 • Letter: P
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 $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
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.
Assume that Paul Sabin has asked you to assess his company’s profitability and stock market performance.
You decide first to assess the company’s stock market performance. For both this year and last year, compute:
The earnings per share. There has been no change in common stock over the last two years.(Round your answers to 2 decimal places.)
This Year and Last Year Earnings per share
The dividend yield ratio. The company’s stock is currently selling for $50 per share; last year it sold for $46 per share. (Do not round intermediate calculations. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).
This YearLast YearDividend yield ratio%%
The dividend payout ratio. (Round intermediate calculations to 2 decimal places. Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
This YearLast YearDividend payout ratio%%
The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)
This YearLast YearPrice-earnings ratio
The book value per share of common stock. (Round your answers to 2 decimal places.)
2. You decide next to assess the company’s profitability. Compute the following for both this year and last year:
The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
This YearLast YearGross margin percentage%%
The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
This YearLast YearNet profit margin percentage%%
The return on total assets. (Total assets at the beginning of last year were $2,330,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
This YearLast YearReturn on total assets%%
The return on equity. (Stockholders’ equity at the beginning of last year was $1,317,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
This YearLast YearReturn on equity%%
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 $510,000 long-term loan from Gulfport State Bank, $105,000 of which will be used to bolster the Cash account and $405,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
Explanation / Answer
Details This Year Last Year 1a No Of Common stock outstanding 35,000 35,000 Net Income 302,400 204,400 EPS= Net Income/No of stock outstanding $ 8.64 $ 5.84 Share Price 50 46 Common Dividend 111,000 90,000 Dividend Per share= $ 3.17 $ 2.57 Dividend Yield=DPS/Share price= 6.34% 5.59% Net Income 302,400 204,400 Common Dividend 111,000 90,000 Dividend Payout Ratio=Dividend paid/Net Income= 36.71% 44.03% Price Earning Ratio=Price/EPS= 5.79 7.88 Total Book Value of Common Stock 700,000 700,000 No Of Common stock outstanding 35,000 35,000 Book Value per common stock=Total Book Value/No of common stock= $ 20.00 $ 20.00 2a Gross Profit Matgin=Gross Profit/Sales 23.07% 21.00% b Net Profit Margin=Net Profit/sales 5.99% 4.67% Average Total Assets 2,667,700 2,373,500 Net Income 302,400 204,400 c Return on Assets =Net Income/Avg Assets= 11.34% 8.61% Avg stockholders'equity= 1,422,700 1,322,000 Net Income 302,400 204,400 d Return on Equity = 21.26% 15.46%