Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several
ID: 341075 • 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 $570,000 long-term loan from Gulfport State Bank, $135,000 of which will be used to bolster the Cash account and $435,000 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:
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.)
For both this year and last year, compute:
The dividend yield ratio. The company’s stock is currently selling for $60 per share; last year it sold for $45 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).)
For both this year and last year, compute:
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).)
For both this year and last year, compute:
The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)
For both this year and last year, compute:
The book value per share of common stock. (Round your answers to 2 decimal places.)
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:
For both this year and last year, compute:
The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
For both this year and last year, compute:
The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
For both this year and last year, compute:
The return on total assets. (Total assets at the beginning of last year were $2,510,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
For both this year and last year, compute:
The return on equity. (Stockholders’ equity at the beginning of last year was $1,599,000.) (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 $570,000 long-term loan from Gulfport State Bank, $135,000 of which will be used to bolster the Cash account and $435,000 of which will be used to modernize equipment. The company’s financial statements for the two most recent years follow:
Explanation / Answer
Answer 1-a. Earning per Share = (Net Income - Dividends on preferred stock) / Average Outstanding Shares This Year Last Year Net Income 466,200.00 284,200.00 Outstanding Shares 38,000.00 38,000.00 Earning Per Share 12.27 7.48 Answer 1-b. Dividend Yield Ratio = Dividend per Share / Current Market Price per Share This Year Last Year Dividend 3.08 2.53 Current Market Price per Share 60.00 45.00 Dividend Yield Ratio 5.1% 5.6% Answer 1-c. Dividend Payout Ratio = Dividends / Net Income This Year Last Year Dividends 117,000.00 96,000.00 Net Income 466,200.00 284,200.00 Dividend Payout Ratio 25.10% 33.78% Answer 1-d. Price-Earnings Ratio = Market Value per Share / Earning Per Share This Year Last Year Current Market Price per Share 60.00 45.00 Earning Per Share 12.27 7.48 Price Earning Ratio 4.89 6.02 Answer 1-e. Book Value Per Share = Total Stockholders Equity / No. of Shares Outstanding This Year Last Year Total Stockholders' Equity 1,958,200.00 1,609,000.00 Outstanding Shares 38,000.00 38,000.00 Book Value Per Share 51.53 42.34