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 840,000 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 $20. All of the company’s sales are on account.

Required:

Compute the following financial data for this year:

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

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

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

4. 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 $ 6,344 $ 6,400 Accounts receivable, net 12,700 9,300 Inventory 9,900 8,360 Prepaid expenses 1,840 2,180 Total current assets 30,784 26,240 Property and equipment: Land 6,400 6,400 Buildings and equipment, net 19,600 19,400 Total property and equipment 26,000 25,800 Total assets $ 56,784 $ 52,040 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 9,900 $ 8,500 Accrued liabilities 680 900 Notes payable, short term 340 340 Total current liabilities 10,920 9,740 Long-term liabilities: Bonds payable 10,000 10,000 Total liabilities 20,920 19,740 Stockholders' equity: Common stock 840 840 Additional paid-in capital 4,400 4,400 Total paid-in capital 5,240 5,240 Retained earnings 30,624 27,060 Total stockholders' equity 35,864 32,300 Total liabilities and stockholders' equity $ 56,784 $ 52,040

Explanation / Answer

This Year Last Year Gross profit $        29,000 $     28,000 sales $        83,000 $     78,000 Gross margin percentage 34.94% 35.90% Net operating income $          7,700 $        8,200 sales $        83,000 $     78,000 Net profit margin percentage 9.28% 10.51% Net operating income $          7,700 $        8,200 Total assets $        56,784 $     52,040 Return on total assets 13.56% 15.76% net income $          3,900 $        4,200 equity $        35,864 $     32,300 Return on equity 10.87% 13.00%

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