Exercise 13-9 Financial Ratios for Assessing Profitability and Managing Debt [LO

Question

Exercise 13-9 Financial Ratios for Assessing Profitability and Managing Debt [LO13-4, LO13-51 The financial statements for Castile Products, Inc., are given below Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash Accounts receivable, net Merchandise inventory Prepaid expenses $ 22,000 190,000 300,000 7,000 519,000 890,000 Total current assets Property and equipment, net Total assets $1,409,000 Liabilities and Stockholders' Equity Liabilities: S 280,000 Current liabilities Bonds payable, 11% 320,000 600,000 S 190,000 Total liabilities Stockholders' equity Common stock, $5 par value Retained earnings 619,000 809,000 $1.409,000 Total stockholders' equity Total liabilities and stockholders' equity Castile Products, Inc. Income Statement For the Year Ended December 31 Sales Cost of goods sold $2,230,000 1,180,000 Gross margin Selling and administrative expenses 1,050,000 640,000 Net operating income Interest expense 410,000 35,200 374,800 112,440 Net income before taxes Income taxes (30%) S 262,360 Net income

Explanation / Answer

1.

Gross margin percentage = Gross profit / Total sales

= 1,050,000 / 2,230,000

Gross margin percentage = 47.09%

2.

Net Profit margin percentage = Net profit / Total sales

= 262,360 / 2,230,000

Net Profit margin percentage = 11.77%

3.

Return on Assets = Net profit before interest and tax / Total Assets

= 410,000 / 1,409,000

Return on Assets = 29.1%

4.

Return on Equity = Net Income / Shareholder’s equity

= 262,360 / 809,000

Return on Equity = 32.43%

5.

Positive

Financial Leverage = Net income before interest and tax / Net income before tax

= 410,000 / 374,800

Financial Leverage = 1.09

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.