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

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 $ 18,000 190,000 360,000 11,000 579,000 890,000 Total current assets Property and equipment, net Total assets $1,469,000 Liabilities and Stockholders' Equity Liabilities $ 240,000 Current liabilities Bonds payable, 9% 310,000 550,000 $ 140,000 Total liabilities Stockholders' equity: Common stock, $10 par value Retained earnings 779,000 919,000 $1,469,000 Total stockholders' equity Total liabilities and stockholders' equity Castile Products, Inc Income Statement For the Year Ended December 31 Sales Cost of goods sold $2,180,000 1,170,000 Gross margin Selling and administrative expenses 1,010,000 630,000 Net operating income Interest expense 380,000 27,900 Net income before taxes Income taxes (30%) 352,100 105,630 Net income $ 246,470 Account balances at the beginning of the year were: accounts receivable, $180,000; and inventory, $290,000. All sales were on account. Assets at the beginning of the year totaled $1,020,000, and the stockholders' equity totaled $665,000

Explanation / Answer

3 return on total assets= EBIT / total net asets

EBIT = net income + interest expenses + taxes

EBIT= 246470 + 27900 + 105630 = 380000

return on total assets = 380000 / 1469000 =0.2586= 25.87%

4 return on equity = net income / share holders equity

return on equity = 246470 / 919000 = 0.2681 = 26.82

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