Comparative financial statements for Weler Corporation, a merchandising company,

Question

Comparative financial statements for Weler 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 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 $27. All of the company's sales are on account.

Explanation / Answer

Answer 1.

Gross Margin Percentage = Gross Margin / Sales
Gross Margin Percentage = $36,000 / $97,000
Gross Margin Percentage = 37.1%

Answer 2.

Net Profit Margin Percentage = Net Income / Sales
Net Profit Margin Percentage = $6,510 / $97,000
Net Profit Margin Percentage = 6.7%

Answer 3.

Average Assets = ($62,148 + $54,570) / 2
Average Assets = $58,359

Return on Total Assets = Net Income / Average Assets
Return on Total Assets = $6,510 / $58,359
Return on Total Assets = 11.2%

Answer 4.

Average Equity = ($40,658 + $34,540) / 2
Average Equity = $37,599

Return on Equity = Net Income / Average Equity
Return on Equity = $6,510 / $37,599
Return on Equity = 17.3%

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