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 800,000 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 800,000 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

1. Gross profit percentage = gross profit*100/sales

                                      = 27000*100/79000

Gross profit percentage = 34.2%

2) Net profit percentage = net profit *100/sales

                                  = 3540*100/79000

Net profit percentage = 4.5%

3) Return on total assets = (net income+interest expenses)*100/Average total assets

                                     = (3540+600)*100/48120

Return on total assets = 8.6%

4) Return on equity = net income*100/average equity

                           = 3540*100/33270

Return on equity = 10.64%

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