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The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets
Account balances at the beginning of the year were: accounts receivable, $200,000; and inventory, $340,000. All sales were on
5. Was financial leverage positive or negative for the year? Positive Negative
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Answer #1
Gross Margin Ratio Percentage (Gross Margin/Net Sales)*100 (1000000/2250000)*100                      44.44
Net Profit Margin Percentage (Net Income/Net Sales)*100 (236950/2250000)*100                      10.53
Return on Total Assets (net operating income/Average total Assets)*100 (370000/1276000)*100                      29.00
Average total Assets (Opening Assets+Closing Assets)/2 (1100000+1452000)/2              12,76,000
Return on Equity (Net Income/Average Stock Holders Equity)*100 (236950/798500)*100                      29.67
Average Stock Holders Equity (Opening Equity+Closing Equity)/2 (725000+872000)/2                7,98,500
Financial Leverage
Debt to Equity (Debt/Share Holders Equity)*100 (350000/872000)*100 40.14
(Earning Before Interest and Tax (EBIT)/Earning Before Tax EBT)*100 (370000/338500)*100                    109.31
Note: based on the above formule for Financial Leverage is Positive (Multiple ratios are considered for analysis of financial leverage such as debt equity ratio, debt to total assets ratio, Degree of financial leverage etc. in the given case debt equity ration and degree of financial leverage ratios are considered)
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