Question

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

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.