Question

The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash Accounts receivable, net Merchandise inventory Prepaid expenses $ 24,000 170,000 360,000 8,000 Total current assets Property and equipment, net 562,000 810,000 Total assets $1,372,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 9% $ 250,000 320,000 570,000 Total liabilities Stockholders' equity: Common stock, $10 par value Retained earnings $ 120,000 682,000 Total stockholders' equity 802,000 Total liabilities and stockholders' equity $1,372,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales $2,170,000 Cost of goods sold 1,240,000 Gross margin Selling and administrative expenses 930,000 590,000 Net operating income Interest expense 340,000 28,800 Net income before taxes Income taxes (30%) 311,200 93,360 Net income $ 217,840 Account balances at the beginning of the year were: accounts receivable, $240,000; and inventory $280,000. All sales were on account. Assets at the beginning of the year totaled $1,080,000, and the stockholders' equity totaled $665,000.

Answer 1

Ans:

1) Gross margin = gross margin/sales
930000/2170000 = 42.86%
2) Net profit margin % = Net income/sales
217,840/2170000 = 10.04%
3) return on total assets = net income /average total assets
Net income	217840
Average total assets = 1372000+1080000/2=1226000
Return on total assets = 217840/1226000 =17.77%
4) Return on equity = net income/average stockholder equity
average stockholder equity = 665,000+802000/2 = 733,500
Return on equity = 217840/733,500 = 29.70%
5) Positive (because ROE more than ROA)