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 980,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.80 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $27. 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 $ 4,568 $ 5,440 Accounts receivable, net 16,200 9,150 Inventory 10,600 8,920 Prepaid expenses 1,980 2,460 Total current assets 33,348 25,970 Property and equipment: Land 7,800 7,800 Buildings and equipment, net 21,000 20,800 Total property and equipment 28,800 28,600 Total assets $ 62,148 $ 54,570 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 11,300 $ 9,200 Accrued liabilities 960 1,600 Notes payable, short term 480 480 Total current liabilities 12,740 11,280 Long-term liabilities: Bonds payable 8,750 8,750 Total liabilities 21,490 20,030 Stockholders' equity: Common stock 980 980 Additional paid-in capital 5,100 5,100 Total paid-in capital 6,080 6,080 Retained earnings 34,578 28,460 Total stockholders' equity 40,658 34,540 Total liabilities and stockholders' equity $ 62,148 $ 54,570

Explanation / Answer

1. Gross margin percentage = Gross margin / Sales
= $36,000 / $97,000
= 37.1%

2. Net profit margin percentage =  Net profit margin / Sales
= $6,510 / $97,000
= 6.7%

3. Return on total assets = Net operating income / Average total assets
= [$11,900 / {($62,148 + $54,570)/2}]
= $11,900 / $58,359
= 20.4%

4. Return on equity = Net income / Average shareholder's equity
= [$6,510 / {($40,658 + 34,540)/2}]
= $6,510 / $37,599
= 17.31%

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