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 880,000 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 $22. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets Cash Accounts receivable, net Inventory Prepaid expenses $ 3,508$ 4,340 15,200 10,150 8,520 2,260 10,100 1,880 lotal current assets 30,688 25,270 Property and equipment: 6,800 6,800 Buildings and equipment, net Total property and equipment Total assets 20,000 19,800 26,800 26,600 $57,488 $51,870 Liabilities and Stockholders' Equity Current liabilities Accounts payable Accrued liabilities $10,300 $ 8,700 1,100 380 760 380 Notes payable, short term Total current liabilities Long-term liabilities 11,440 10,180 8,750 20,190 18,930 Bonds payable 8,750 Total liabilities Stockholders' equity: Common stock Additional paid-in capital 880 4,600 880 4,600 Total paid-in capital Retained earnings 5,480 31,818 27,460 5,480

Explanation / Answer

Answer 1. Gross Margin Percentage = Gross Margin / Sales Gross Margin Percentage = $31,000 / $87,000 Gross Margin Percentage = 35.6% (Approx.) Answer 2. Net Profit Margin Percentage = Net Profit / Sales Net Profit Margin Percentage = $4,710 / $87,000 Net Profit Margin Percentage = 5.4% (Approx.) Answer 3. Return on Total Assets = EBIT / Average Assets Average Assets = ($51,870 + $57,488) / 2 Average Assets = $54,679 Return on Total Assets = $8,900 / $54,679 Return on Total Assets = 16.3% (Approx.) Answer 4. Return on Equity = Net Income / Avg. Shareholder Equity Avg. Shareholder Equity = ($32,940 + $37,298)/2 Avg. Shareholder Equity = $35,119 Return on Equity = $4,710 / $35,119 Return on Equity = 13.4% (Approx.)

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