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Question 1 Wildhorse Medical manufactures hospital beds and other institutional

ID: 2588599 • Letter: Q

Question

Question 1

Wildhorse Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.

a) Calculate the following profitability ratios for 2016. (Round answers to 1 decimal place, e.g. 50.1%.)

Wildhorse Medical
Comparative Balance Sheet
As of December 31 2016 2015 Assets Current assets   Cash $359,000 $417,450   Accounts receivable, net 1,066,200 776,450   Inventory 722,000 681,000   Other current assets 351,000 247,000 Total current assets 2,498,200 2,121,900 Property, plant, & equipment, net 8,817,440 8,451,115   Total assets $11,315,640 $10,573,015 Liabilities and Stockholders’ Equity Current liabilities $3,174,000 $2,846,000 Long-term debt 3,702,600 3,892,600   Total liabilities 6,876,600 6,738,600 Preferred stock, $5 par value 59,300 59,300 Common stock, $0.25 par value 111,000 103,850 Retained earnings 4,268,740 3,671,265   Total stockholders’ equity 4,439,040 3,834,415   Total liabilities and stockholders’ equity $11,315,640 $10,573,015

Explanation / Answer

a. Gross margin percentage = Gross margin / Sales
= $4,706,000 / $10,100,000
= 46.59%

b. Return on assets = Net Income / Average total assets
= $1,037,925 / {($11,315,640 + $10,573,015)/2}
= 9.48%

c. Return on common stockholders’ equity = (Net Income - Preferred Dividend) / (Average common stockholders equity)
= ($1,037,925 - $29,450)    ($111,000+$103,850+$4,268,740+$3,671,265) / 2
= 24.73%

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