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 940,000 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 $25. 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	$	5,304		$	5,350
Accounts receivable, net		15,800			10,450
Inventory		10,400			8,760
Prepaid expenses		1,940			2,380
Total current assets		33,444			26,940
Property and equipment:
Land		7,400			7,400
Buildings and equipment, net		20,600			20,400
Total property and equipment		28,000			27,800
Total assets	$	61,444		$	54,740
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,900		$	9,000
Accrued liabilities		880			1,400
Notes payable, short term		440			440
Total current liabilities		12,220			10,840
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		22,220			20,840
Stockholders' equity:
Common stock		940			940
Additional paid-in capital		4,900			4,900
Total paid-in capital		5,840			5,840
Retained earnings		33,384			28,060
Total stockholders' equity		39,224			33,900
Total liabilities and stockholders' equity	$	61,444		$	54,740

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	93,000		$	88,000
Cost of goods sold		59,000			55,000
Gross margin		34,000			33,000
Selling and administrative expenses:
Selling expenses		9,900			9,400
Administrative expenses		13,400			12,400
Total selling and administrative expenses		23,300			21,800
Net operating income		10,700			11,200
Interest expense		1,200			1,200
Net income before taxes		9,500			10,000
Income taxes		3,800			4,000
Net income		5,700			6,000
Dividends to common stockholders		376			752
Net income added to retained earnings		5,324			5,248
Beginning retained earnings		28,060			22,812
Ending retained earnings	$	33,384		$	28,060

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 profit/Sales = 34000/93000 = 36.6%

2) Net profit margin percentage = Net profit/Sales = 5700/93000 = 6.1%

3) Return on total assets = (Net income+Interest)/Average total assets = (5700+1200)/58092 = 11.9%

4) Return on equity = Net income/Average equity = 5700/36562 = 15.59%