Part 1

Ratio: Formula: This Year:

Working Capital
Current Ratio
Acid-Test Ratio
Average Collection Period
Average Sale Period
Operating Cycle
Debt-to-Equity Ratio
Times Interest Earned Ratio
Current Assets-Current Liabilities $ 720,000.00
Current Assets/Current Liabilities 1.900
Quick Assets/Current Liabilites 0.688
365/(Sales on Account/Average A/R) 56.575 days
365/(COGS/Average Inventory) 73 days
Average Sale Period + Average Collection Period 129.575 days
Total Liabilities/Total Equity 0.875
EBIT/Interest Expense 6.556
 Last Year:
$ 660,000.00
2.535
1.088
46.149 days
58.188 days References Bank
104.337 days Label: This Year: Last Year:
0.720 CA 1,520,000.00 1,090,000.00
4.889 CL 800,000.00 430,000.00
QA 550,000.00 468,000.00
Sales on Acct 5,000,000.00 4,350,000.00
Beg. A/R 300,000.00 250,000.00
Ending A/R 480,000.00 300,000.00
COGS 3,875,000.00 3,450,000.00
Beg. Inventory 600,000.00 500,000.00
Ending Inventory 950,000.00 600,000.00
TL 1,400,000.00 1,030,000.00
TE 1,600,000.00 1,430,000.00
EBIT 472,000.00 352,000.00
Interest Expense 72,000.00 72,000.00
days
 Part 2

Sabin Electronics
Common-Size Balance Sheets

This Year Last Year

Assets
Current assets:
Cash 2.33% 6.10%
Marketable Securities 0.00% 0.73%
Accounts receivable, net 16.00% 12.20%
Inventory 31.67% 24.39%
Prepaid expenses 0.67% 0.89%
Total current assets 50.67% 44.31%
Plant and equipment, net 49.33% 55.69%
Total assets 100.00% 100.00%

Liabilities and Stockholders' Equity

Liabilities:
Current liabilities 27% 17%
Bonds payable, 12% 20% 24%
Total liabilities 47% 42%

Stockholders' equity:
Common stock, $15 par 25% 30%
Retained earnings 28% 28%
Total stockholders' equity 53% 58%

Total liabilities and stockholders' equity 100% 100%

Sabin Electronics
Common-Size Income Statements

This Year Last Year

Sales 100% 100%
Cost of goods sold 78% 79%
Gross margin 23% 21%
Selling and administrative expenses 13% 13%
Net operating income 9% 8%
Interest expense 1% 2%
Net income before taxes 8% 6%
Income taxes 2% 2%
Net income 6% 5%
 References Bank
Label: This Year: Last Year:
Cash 70,000.00 150,000.00
Marketable securities - 18,000.00
Accounts receivable, net 480,000.00 300,000.00
Inventory 950,000.00 600,000.00
Prepaid expenses 20,000.00 22,000.00
Total current assets 1,520,000.00 1,090,000.00
Plant and equipment, net 1,480,000.00 1,370,000.00
Total assets 3,000,000.00 2,460,000.00
Current liabilities 800,000.00 430,000.00
Bonds payable, 12% 600,000.00 600,000.00
Total liabilities 1,400,000.00 1,030,000.00
Common stock, $15 par 750,000.00 750,000.00
Retained earnings 850,000.00 680,000.00
Total stockholders' equity 1,600,000.00 1,430,000.00
Total liabilities and stockholders' equity 3,000,000.00 2,460,000.00

References Bank
Label: This Year: Last Year:
Sales 5,000,000.00 4,350,000.00
Cost of goods sold 3,875,000.00 3,450,000.00
Gross margin 1,125,000.00 900,000.00
Selling and administrative expenses 653,000.00 548,000.00
Net operating income 472,000.00 352,000.00
Interest expense 72,000.00 72,000.00
Net income before taxes 400,000.00 280,000.00
Income taxes 120,000.00 84,000.00
Net income 280,000.00 196,000.00
Memo:

I think they might not get the loan. The industry benchmark for acid-test ratios is about 1.3 and this past
year Sabin's acid-test ratio was around .6. That's significantly lower than the industry benchmark and
makes Sabin a risky investment. The industry benchmark for debt-to-equity ratios is around .01. Sabin's
debt-to-equity ratio was around .8 for this past year. This speaks to the fact that they are highly leveraged,
and with the acid-test ratio being so low, the leverage looks to be more negative. The biggest part of their
current assets is inventory, which isn't fantastic because you're less liquid if that's the biggest percentage
of your current assets. Other than that they look pretty well situated, but these things together make
Sabin a more risky investment than others, meaning it is possible the bank will not grant them the loan.