The financial statements for Castile Products, Inc., are given below: Account ba

Question

The financial statements for Castile Products, Inc., are given below:

     Account balances at the beginning of the year were: accounts receivable, $180,000; and inventory, $270,000. All sales were on account. Assets at the beginning of the year totaled $1,070,000, and the stockholders’ equity totaled $695,000.

1. Gross margin percentage.

2. Net profit margin percentage.

3. Return on total assets.

4. Return on equity. 5. Was financial leverage positive or negative for the year?

The financial statements for Castile Products, Inc., are given below:

Explanation / Answer

Solution :

1. Gross margin percentage. = (Gross margin / Sales ) x 100

= 910,000 / 2,170,000

= 41.93%

2. Net profit margin percentage. = (Net profit / Sales) x 100

= (195,300 / 2,170,000) x 100

= 9%

3. Return on total assets. = (Net Income / Average total assets) x 100

= (195,300 / 1,256,500) x 100

= 15.54%

4. Return on equity = (Net income / Average equity) x 100

= (195,300 / 814,000) x 100

= 23.99%

5. Return on total assets is more than interest on borrowings, hence financial leverage was positive

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