Question

Exercise 12-10

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

Oriole Medical Comparative Balance Sheet As of December 31
		2016		2015
Assets
Current assets
Cash		$357,000		$417,400
Accounts receivable, net		1,065,600		776,450
Inventory		729,000		681,050
Other current assets		386,000		247,000
Total current assets		2,537,600		2,121,900
Property, plant, & equipment, net		8,574,855		8,389,815
Total assets		$11,112,455		$10,511,715
Liabilities and Stockholders’ Equity
Current liabilities		$3,123,000		$2,846,100
Long-term debt		3,702,650		3,892,700
Total liabilities		6,825,650		6,738,800
Preferred stock, $5 par value		53,900		53,900
Common stock, $0.25 par value		195,000		103,850
Retained earnings		4,037,905		3,615,165
Total stockholders’ equity		4,286,805		3,772,915
Total liabilities and stockholders’ equity		$11,112,455		$10,511,715

Oriole Medical Comparative Income Statement and Statement of Retained Earnings For the Year
		2016		2015
Sales revenue (all on account)		$10,010,000		$9,613,950
Cost of goods sold		5,539,000		5,298,750
Gross profit		4,471,000		4,315,200
Operating expenses		2,840,300		2,634,150
Net operating income		1,630,700		1,681,050
Interest expense		376,000		308,600
Net income before taxes		1,254,700		1,372,450
Income taxes (30%)		376,410		411,735
Net income		$878,290		$960,715
Dividends paid
Preferred dividends		29,550		29,550
Common dividends		426,000		470,000
Total dividends paid		455,550		499,550
Net income retained		422,740		461,165
Retained earnings, beginning of year		3,615,165		3,154,000
Retained earnings, end of year		$4,037,905		$3,615,165

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

a.	Gross margin percentage		%
b.	Return on assets		%
c.	Return on common stockholders’ equity		%

Answer 1

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