Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several
ID: 2492435 • 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 $690,000 long-term loan from Gulfport State Bank, $195,000 of which will be used to bolster the Cash account and $495,000 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 2/10, 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.)
The dividend yield ratio. The company’s stock is currently selling for $60 per share; last year it sold for $55 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).)
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).)
The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)
The book value per share of common stock. (Round your answers to 2 decimal places.)
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).)
The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
The return on total assets. (Total assets at the beginning of last year were $3,112,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
The return on equity. (Stockholders’ equity at the beginning of last year was $1,882,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
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 $690,000 long-term loan from Gulfport State Bank, $195,000 of which will be used to bolster the Cash account and $495,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
Explanation / Answer
Sabin Electronics Ratio Calculations This Year Last Year 1 No of common stock outstanding 44,000 44,000 a EPS =Net Income/No of common stock 17.37 9.42 b Price per share 60 55 Dividend per share= 2.93 2.45 Dividend Yield= DPS/Price per share 4.89% 4.46% c Net Income 764,400 414,400 Dividend paid 129,000 108,000 Dividend payout ratio 16.88% 26.06% d PE ratio= Price per share/EPS= 3.45 5.84 e Book value of shareholders Equity 2,527,400 1,892,000 No of common stock outstanding 44,000 44,000 Book Value per common share $ 57.44 $ 43.00 2 a Gross Margin %=Gross Profit/Sales 31.68% 26.02% b Net Margin %=Net Income/Sales= 12.85% 8.42% c Average Total Assets 3,712,000 3,132,000 Return on Total Assets 20.59% 13.23% d Average Equity 2,209,700 1,887,000 Return on Equity = 34.6% 22.0%