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Business
Accounting
Paul Sabin

Paul Sabin

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Paul Sabin has also gathered the following financial data and ratios that are typical of companies in the electronics industry:

Current Ratio                                     2.5

Acid-Test Ratio                                  1.3

Average Collection period            18 Days

Average Sales Period                      60 Days

Debt-to-Equity Ratio                       0.90

Times Interest Earned Ratio         6.0

 

Comment on the results of your analysis (1) and (2) from the screenshots and images shown and compare Sabin Electronics’ performance to the benchmarks from the electronics industry.  Do you think that the company is likely to get its loan application approved?

1. 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: 1. Working capital 2. Current Ratio 3.Acid-test ratio 4. Average collection period 365/(Sales/(Average Accounts Receivable)) 365/(Cost of goods sold/Average Inventories)) 365/(Cost of goods sold/Average Payable)) Average collection period + Average sales period - Average payable period Sales/Average Assets 8. Debt to equity ratio Total long-term liabilities/Total Equity 9.Times Interest Earned Ratio 10.Equity Multiplier 5. Average sale period Average Payable Period Current Assets - Current Liabilities Current Assets/Current Liabilities (Current Assets - Inventory - Prepaid expense)/Current Liabilities 6. Operating cycle 7. Total Assets Turnover Operating Profit/Interest expense Average Total Assets/Average Total Equity This Past Year Year $720,00 $660,00 0 1.90 0.69 28 73 58 44 1.83 6.56 0 2.53 1.80 1.09 25 58 45 38 37.5% 42.0% 1.78 4.89 1.71
Transcribed Image Text:1. 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: 1. Working capital 2. Current Ratio 3.Acid-test ratio 4. Average collection period 365/(Sales/(Average Accounts Receivable)) 365/(Cost of goods sold/Average Inventories)) 365/(Cost of goods sold/Average Payable)) Average collection period + Average sales period - Average payable period Sales/Average Assets 8. Debt to equity ratio Total long-term liabilities/Total Equity 9.Times Interest Earned Ratio 10.Equity Multiplier 5. Average sale period Average Payable Period Current Assets - Current Liabilities Current Assets/Current Liabilities (Current Assets - Inventory - Prepaid expense)/Current Liabilities 6. Operating cycle 7. Total Assets Turnover Operating Profit/Interest expense Average Total Assets/Average Total Equity This Past Year Year $720,00 $660,00 0 1.90 0.69 28 73 58 44 1.83 6.56 0 2.53 1.80 1.09 25 58 45 38 37.5% 42.0% 1.78 4.89 1.71
2. Sabin Electronics Balance-Sheet Current Assets Cash Marketable securities Accounts Receivable, Net Inventory Prepaid expenses Total Current Assets Plant and Equipment, Net Total Assets Liabilities and stockholders' Equity Liabilities Current Liabilities Bonds Payable, 12% Total Liabilities Stockholder's Equity Common stock, $15 par Retained Earnings Total Stockholder's Equity Total Liabilities and Equity This Year Percent Last Year Percent $70,000 2.3% $150,000 6.1% 0.0% 18,000 0.7% 480,000 16.0% 300,000 12.2% 950,000 31.7% 600,000 24.4% 20,000 0.7% 22,000 0.9% 1,520,000 50.7% 1,480,000 49.3% 3,000,000 100.0% $800,000 26.7% 600,000 20.0% 1,400,000 46.7% 750,000 25.0% 850,000 28.3% 1,600,000 53.3% 3,000,000 100.0% 1,090,000 44.3% 1,370,000 55.7% 2,460,000 100.0% $430,000 17.5% 600,000 24.4% 1,030,000 41.9% 750,000 30.5% 680,000 680,000 27.6% 1,430,000 58.1% 2,460,000 100.0%
Transcribed Image Text:2. Sabin Electronics Balance-Sheet Current Assets Cash Marketable securities Accounts Receivable, Net Inventory Prepaid expenses Total Current Assets Plant and Equipment, Net Total Assets Liabilities and stockholders' Equity Liabilities Current Liabilities Bonds Payable, 12% Total Liabilities Stockholder's Equity Common stock, $15 par Retained Earnings Total Stockholder's Equity Total Liabilities and Equity This Year Percent Last Year Percent $70,000 2.3% $150,000 6.1% 0.0% 18,000 0.7% 480,000 16.0% 300,000 12.2% 950,000 31.7% 600,000 24.4% 20,000 0.7% 22,000 0.9% 1,520,000 50.7% 1,480,000 49.3% 3,000,000 100.0% $800,000 26.7% 600,000 20.0% 1,400,000 46.7% 750,000 25.0% 850,000 28.3% 1,600,000 53.3% 3,000,000 100.0% 1,090,000 44.3% 1,370,000 55.7% 2,460,000 100.0% $430,000 17.5% 600,000 24.4% 1,030,000 41.9% 750,000 30.5% 680,000 680,000 27.6% 1,430,000 58.1% 2,460,000 100.0%
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