Comparative financial statements for Weller Corporation, a merchandising company

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 980,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $27. All of the company’s sales are on account.

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

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

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

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

Weller Corporation
Comparative Balance Sheet
(dollars in thousands) This Year Last Year   Assets   Current assets:      Cash $ 4,568 $ 5,440      Accounts receivable, net 16,200 9,150      Inventory 10,600 8,920      Prepaid expenses 1,980 2,460   Total current assets 33,348 25,970   Property and equipment:      Land 7,800 7,800      Buildings and equipment, net 21,000 20,800   Total property and equipment 28,800 28,600   Total assets $ 62,148 $ 54,570   Liabilities and Stockholders' Equity   Current liabilities:      Accounts payable $ 11,300 $ 9,200      Accrued liabilities 960 1,600      Notes payable, short term 480 480   Total current liabilities 12,740 11,280   Long-term liabilities:      Bonds payable 8,750 8,750   Total liabilities 21,490 20,030   Stockholders' equity:      Common stock 980 980      Additional paid-in capital 5,100 5,100        Total paid-in capital 6,080 6,080        Retained earnings 34,578 28,460   Total stockholders' equity 40,658 34,540   Total liabilities and stockholders' equity $ 62,148 $ 54,570

Explanation / Answer

Solution 1:

Gross margin percentage = Gross profit / Sales = $36,000 / $97,000 = 37.1%

Solution 2:

Net profit margin percentage = Net Income / Sales = $6,510 / $97,000 = 6.7%

Solution 3:

Return on total assets = Net operating income / Average total assets

Net operating income = $11,900

Average total assets = (Beginning total assets + Ending total assets) / 2 = ($62,148 + $54,570) / 2 = $58,359

Return on total assets = $11,900 / $58,359 = 20.4%

Solution 4:

Return on equity = Net Income / Average shareholder's equity

Net Income = $6,510

Average stockholder's equity = (Begining stockholder's equity + Ending stockholder's equity)/2

= ($40,658 + $34,540) / 2 = $37,599

Return on equity = $6,510 / $37,599 = 17.31%

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