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 860,000 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 $21. 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 $ 976 $ 1,920      Accounts receivable, net 15,000 10,050      Inventory 10,000 8,440      Prepaid expenses 1,860 2,220   Total current assets 27,836 22,630   Property and equipment:      Land 6,600 6,600      Buildings and equipment, net 19,800 19,600   Total property and equipment 26,400 26,200   Total assets $ 54,236 $ 48,830   Liabilities and Stockholders' Equity   Current liabilities:      Accounts payable $ 10,100 $ 8,600      Accrued liabilities 720 1,000      Notes payable, short term 360 360   Total current liabilities 11,180 9,960   Long-term liabilities:      Bonds payable 6,250 6,250   Total liabilities 17,430 16,210   Stockholders' equity:      Common stock 860 860      Additional paid-in capital 4,500 4,500        Total paid-in capital 5,360 5,360        Retained earnings 31,446 27,260   Total stockholders' equity 36,806 32,620   Total liabilities and stockholders' equity $ 54,236 $ 48,830

Explanation / Answer

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

                                          = 30000*100/85000

Gross margin percentage = 35.3%

2. net margin percentage = Net income*100/sales

                                     = 4530*100/85000

Net margin percentage = 5.3%

3. Return on assets = (net income+interest)*100/average assets

                              = (4530+750)*100/51533

Return on assets = 10.2%

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

                              = 4530*100/34713

Return on equity = 13.05%

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