Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several
ID: 340921 • 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:
You decide next to assess the company’s profitability. Compute the following for both this year and last year:
What I originally got for those parts:
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:
e. The book value per share of common stock. (Round your answers to 2 decimal places.) This Year Last Year Book value per shareExplanation / Answer
Answer to Part 1-e.
Book Value per Share = Total Stockholders’ Equity / Stock Outstanding
This Year:
Stock Outstanding = 700,000 / 20 = 35,000 Shares
Book Value per Share = 1,581,400 / 35,000
Book Value per Share = $43.38
Last Year:
Stock Outstanding = 700,000 / 20 = 35,000 Shares
Book Value per Share = 1,327,000 / 35,000
Book Value per Share = $37.91
Answer to Part 2-b.
Net Profit Margin Percentage = Net Income / Net Sales * 100
This Year:
Net Profit Margin Percentage = 302,400 / 5,050,000 * 100
Net Profit Margin Percentage = 6.0%
Last Year:
Net Profit Margin Percentage = 204,400 / 4,380,000 * 100
Net Profit Margin Percentage = 4.7%
Answer to Part 2-c.
Return on Total Assets = Operating Income / Average Total Assets
This Year:
Average Total Assets = (2,918,400 + 2,417,000) / 2
Average Total Assets = $2,667,700
Return on Total Assets = 510,000 / 2,667,700
Return on Total Assets = 19.1%
Last Year:
Average Total Assets = (2,417,000 + 2,330,000) / 2
Average Total Assets = $2,373,500
Return on Total Assets = 370,000 / 2,373,500
Return on Total Assets = 15.6%