Question

The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December...

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc.
Balance Sheet
December 31
  Assets
  Current assets:
     Cash $ 19,000
     Accounts receivable, net 190,000
     Merchandise inventory 390,000
     Prepaid expenses 8,000
  Total current assets 607,000
  Property and equipment, net 870,000
  Total assets $ 1,477,000
  Liabilities and Stockholders' Equity
  Liabilities:
     Current liabilities $ 240,000
     Bonds payable, 9% 380,000
  Total liabilities 620,000
  Stockholders’ equity:
     Common stock, $10 par value $ 140,000
     Retained earnings 717,000
  Total stockholders’ equity 857,000
  Total liabilities and stockholders' equity $ 1,477,000
Castile Products, Inc.
Income Statement
For the Year Ended December 31
  Sales $ 2,230,000
  Cost of goods sold 1,170,000
  Gross margin 1,060,000
  Selling and administrative expenses 630,000
  Net operating income 430,000
  Interest expense 34,200
  Net income before taxes 395,800
  Income taxes (30%) 118,740
  Net income $ 277,060

     Account balances at the beginning of the year were: accounts receivable, $170,000; and inventory, $360,000. All sales were on account. Assets at the beginning of the year totaled $1,020,000, and the stockholders’ equity totaled $675,000.

Required:
Compute the following:
1.

Gross margin percentage. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)


      

2.

Net profit margin percentage. (Round your answer to the nearest whole percentage place (i.e., 0.1234 should be entered as 12%).)

       

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 1 decimal place (i.e., 0.1234 should be entered as 12.3).)


       

5. Was financial leverage positive or negative for the year?
Positive
Negative

Homework Answers

Answer #1
Req1.
Gross Profit Margin:
Gross Margin 10,60,000
Divide: Sales revenue 22,30,000
Gross Profit Margin: 47.53%
Req 2.
Net Profit margin:
Net Income 277060
Divide: Sales revenue 22,30,000
Net Profit margin: 12.42%
Req 3.
Average total assets (1477,000+1020,000)/2 = 1248500
Return on Total assets:
Net Operating income 4,30,000
Divide: Average Total assets 12,48,500
Return on Total assets: 34.44%
Req 4.
Average Stockholder's equity (857000+675000)/2 = 766000
Return on Stockholder's equity:
Net Income 277060
Divide: Average Stockholder's equity 7,66,000
Return on Stockholder's equity: 36.17%
Req 5.
POSITIVE.
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