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 810,000 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 $18. 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).)

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 810,000 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 $18. All of the company’s sales are on account.

Explanation / Answer

Answer 1.

Gross Margin Percentage = Gross Margin / Sales
Gross Margin Percentage = $27,500 / $80,000
Gross Margin Percentage = 34.4%

Answer 2.

Net Profit Margin = Net Income / Sales
Net Profit Margin = $2,420 / $80,000
Net Profit Margin = 3.0%

Answer 3.

Average Total Assets = ($51,906 + $47,480) / 2
Average Total Assets = $49,693

Return on Total Assets = [Net Income + Interest Expense * (1 - tax rate)] / Average Total Assets
Return on Total Assets = [$2,420 + $750 * (1 - 0.40)] / $49,693
Return on Total Assets = $2,870 / $49,693
Return on Total Assets = 5.8%

Answer 4.

Average Stockholders’ Equity = ($35,126 + $31,820) / 2
Average Stockholders’ Equity = $33,473

Return on Equity = Net Income / Average Stockholders’ Equity
Return on Equity = $2,420 / $33,473
Return on Equity = 7.23%

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