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 960,000 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 the year was $26. 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	$	2,036		$	3,020
Accounts receivable, net		16,000			9,050
Inventory		10,500			8,840
Prepaid expenses		1,960			2,420
Total current assets		30,496			23,330
Property and equipment:
Land		7,600			7,600
Buildings and equipment, net		20,800			20,600
Total property and equipment		28,400			28,200
Total assets	$	58,896		$	51,530
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,100		$	9,100
Accrued liabilities		920			1,500
Notes payable, short term		460			460
Total current liabilities		12,480			11,060
Long-term liabilities:
Bonds payable		6,250			6,250
Total liabilities		18,730			17,310
Stockholders' equity:
Common stock		960			960
Additional paid-in capital		5,000			5,000
Total paid-in capital		5,960			5,960
Retained earnings		34,206			28,260
Total stockholders' equity		40,166			34,220
Total liabilities and stockholders' equity	$	58,896		$	51,530

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	95,000		$	90,000
Cost of goods sold		60,000			56,000
Gross margin		35,000			34,000
Selling and administrative expenses:
Selling expenses		10,100			9,600
Administrative expenses		13,600			12,600
Total selling and administrative expenses		23,700			22,200
Net operating income		11,300			11,800
Interest expense		750			750
Net income before taxes		10,550			11,050
Income taxes		4,220			4,420
Net income		6,330			6,630
Dividends to common stockholders		384			768
Net income added to retained earnings		5,946			5,862
Beginning retained earnings		28,260			22,398
Ending retained earnings	$	34,206		$	28,260

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

Gross margin percentage = Gross margin / sales * 100

Gross margin percentage = $35,000 / 95,000 * 100 = 36.8%

Net profit margin percentage = Net profit / Sales * 100

Net profit margin percentage = $6,330 / 95,000 * 100 = 6.7%

Return on total assets = Net income+interest expense(after tax)/ Average total assets

Return on total assets = $6,330+750*60% / (51,530+58,896/2)

Return on total assets = $6,780 / $55,213 *100 = 12.3%

Return on equity = Net income / Average stockholders equity

Return on equity = $6,330 / (34,220+40,166 / 2)

Return on equity = $6,330 / 37,193 *100 = 17.02%