Sabin Electronics
Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	110,000	$	250,000
Marketable securities		0		28,000
Accounts receivable, net		607,000		400,000
Inventory		1,045,000		695,000
Prepaid expenses		30,000		32,000
Total current assets		1,792,000		1,405,000
Plant and equipment, net		1,946,400		1,470,000
Total assets	$	3,738,400	$	2,875,000
Liabilities and Stockholders Equity
Liabilities:
Current liabilities	$	850,000	$	400,000
Bonds payable, 12%		750,000		750,000
Total liabilities		1,600,000		1,150,000
Stockholders' equity:
Common stock, $20 par		790,000		790,000
Retained earnings		1,348,400		935,000
Total stockholders equity		2,138,400		1,725,000
Total liabilities and equity	$	3,738,400	$	2,875,000

Sabin Electronics
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,500,000	$	4,650,000
Cost of goods sold		3,975,000		3,550,000
Gross margin		1,525,000		1,100,000
Selling and administrative expenses		673,000		568,000
Net operating income		852,000		532,000
Interest expense		90,000		90,000
Net income before taxes		762,000		442,000
Income taxes (30%)		228,600		132,600
Net income		533,400		309,400
Common dividends		120,000		99,000
Net income retained		413,400		210,400
Beginning retained earnings		935,000		724,600
Ending retained earnings	$	1,348,400	$	935,000

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 companys profitability and stock market performance.

Required:
1.	You decide first to assess the companys stock market performance. For both this year and last year, compute:

a.	The earnings per share. There has been no change in common stock over the last two years.(Round your answers to 2 decimal places.)

b.	The dividend yield ratio. The companys stock is currently selling for $60 per share; last year it sold for $50 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).)

c.	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).)

d.	The price-earnings ratio. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)

e.	The book value per share of common stock. (Round your answers to 2 decimal places.)

2.	You decide next to assess the companys profitability. Compute the following for both this year and last year:

a.	The gross margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

b.	The net profit margin percentage. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

c.	The return on total assets. (Total assets at the beginning of last year were $2,670,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

d.	The return on equity. (Stockholders equity at the beginning of last year was $1,715,000.) (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

e.

Is the companys financial leverage positive or negative?

	Positive
	Negative

References

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