Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 890,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $22. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	4,774		$	5,550
Accounts receivable, net		15,300			10,200
Inventory		10,150			8,560
Prepaid expenses		1,890			2,280
Total current assets		32,114			26,590
Property and equipment:
Land		6,900			6,900
Buildings and equipment, net		20,100			19,900
Total property and equipment		27,000			26,800
Total assets	$	59,114		$	53,390
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,400		$	8,750
Accrued liabilities		780			1,150
Notes payable, short term		390			390
Total current liabilities		11,570			10,290
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		21,570			20,290
Stockholders' equity:
Common stock		890			890
Additional paid-in capital		4,650			4,650
Total paid-in capital		5,540			5,540
Retained earnings		32,004			27,560
Total stockholders' equity		37,544			33,100
Total liabilities and stockholders' equity	$	59,114		$	53,390

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	88,000		$	83,000
Cost of goods sold		56,500			52,500
Gross margin		31,500			30,500
Selling and administrative expenses:
Selling expenses		9,400			8,900
Administrative expenses		12,900			11,900
Total selling and administrative expenses		22,300			20,800
Net operating income		9,200			9,700
Interest expense		1,200			1,200
Net income before taxes		8,000			8,500
Income taxes		3,200			3,400
Net income		4,800			5,100
Dividends to common stockholders		356			712
Net income added to retained earnings		4,444			4,388
Beginning retained earnings		27,560			23,172
Ending retained earnings	$	32,004		$	27,560

Required:

Compute the following financial data for this year:

1. Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

2. Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

3. Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

4. Return on equity. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Answer 1

1) Gross margin percentage = Gross margin/Sales = 31500/88000 = 35.8%

2) Net profit margin percentage = Net profit/Sales = 4800/88000 = 5.5%

3) Return on total assets = Net income+Interest expense/Total assets = (4800+1200*60%)/56252 = 9.8%

4) Return on equity = Net income/average equity = 4800/35322 = 13.59%