Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Applicatio
ID: 2527599 • Letter: P
Question
Problem 13-18A Common-Size Statements and Financial Ratios for a Loan Application [LO13-1, LO13-2, LO13-3, LO13-4]
ALL ANSWERS ENTERED ARE CORRECT, PLEASE HELP FILL IN THE BLANKS. THANK YOU!
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:
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:
The amount of working capital.
b.
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 $400,000.) (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 $650,000.) (Round your intermediate calculations and final answers to 1 decimal place. Use 365 days in a year.)
days
f. The operating cycle. (Round your intermediate calculations and final answer to 1 decimal place.)
The total asset turnover. (The total assets at the beginning of last year were $3,024,000.) (Round your answers to 2 decimal places.)
h.
i.
j.
The equity multiplier. (The total stockholders’ equity at the beginning of last year totaled $1,854,000.) (Round your answers to 2 decimal places.)
2.
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).)
Sabin Electronics
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).)
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:
Explanation / Answer
This Year Average collection period Avg Accounts receivable/Sales*365 35.6 Days 561000/5750000*365 Avg Accounts receivable (672000+450000)/2 561000 e) Average sale period Avg Inventory/COGS*100 83.4 70.7 days 920000/4025000*365 697500/3600000*365 Avg Inventory 920000 697500 (1095000+745000)/2 (650000+745000)/2 f Operating cycle Avg collection period+Avg sale period 119.0 103.0 35.6+83.4 70.7+32.3 g) Total asset Turnover 1.62 1.58 5750000/((4030400+3064000)/2) 4800000/((3024000+3064000)/2) h) Debt equity ratio 0.676 0.644 1625000/2405400 1200000/1864000 j) Equity multiplier 1.66 Avg assets/Avg equity 3547200/(2405400+1864000)/2) Avg assets 3547200 ((4030400+3064000)/2)