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Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several

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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 $500,000 long-term;loan from Gulfport State Bank, $100,000 of which will be used to bolster the;Cash account and $400,000 of which will be used to modernize equipment. The;company's financial statements for the two most recent years follow;Sabin Electronics;Comparative Balance Sheet;This;Year;Last Year;Assets;Current;assets;Cash;$53,000;$139,000;Marketable;securities;0;20,000;Accounts;receivable, net;471,000;284,000;Inventory;933,000;599,000;Prepaid;expenses;19,000;25,000;Total;current assets;1,476,000;1,067,000;Plant;and equipment, net;1,581,240;1,479,710;Total;assets;$3,057,240;$2,546,710;Liabilities and Stockholders' Equity;Liabilities;Current;liabilities;$805,000;$441,000;Bonds;payable, 10%;617,000;617,000;Total;liabilities;1,422,000;1,058,000;Stockholders;equity;Preferred;stock, $25 par, 6%;277,500;277,500;Common;stock, $10 par;511,000;511,000;Retained;earnings;846,740;700,210;Total;stockholders' equity;1,635,240;1,488,710;Total;liabilities and equity;$3,057,240;$2,546,710;Sabin Electronics;Comparative Income Statement and Reconciliation;This Year;Last Year;Sales;$5,017,000;$4,363,000;Cost;of goods sold;3,870,000;3,441,000;Gross;margin;1,147,000;922,000;Selling;and administrative expenses;643,000;540,000;Net;operating income;504,000;382,000;Interest;expense;61,700;61,700;Net;income before taxes;442,300;320,300;Income;taxes (40%);479,320;357,320;Net;income;265,380;192,180;Dividends;paid;Preferred;dividends;16,650;16,650;Common;dividends;102,200;61,320;Total;dividends paid;118,850;77,970;Net;income retained;146,530;114,210;Retained;earnings, beginning of year;700,210;586,000;Retained;earnings, end of year;$846,740;$700,210;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 the following ratios are typical of companies in the electronics;industry;Current;ratio;2.5;Acid-test;ratio;1.3;Average;collection period;18;days;Average;sale period;60;days;Debt-to-equity;ratio;0.90;Times;interest earned ratio;6.0;Return;on total assets;13;%;Price-earnings;ratio;12;Assume that you are an account executive for a large;brokerage house and that one of your clients has asked for a recommendation;about the possible purchase of Sabin Electronics' stock. You are not;acquainted with the stock and for this reason wish to do some analytical work;before making a recommendation.

 

Paper#51997 | Written in 18-Jul-2015

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