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 980,000 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 $27. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	4,568		$	5,440
Accounts receivable, net		16,200			9,150
Inventory		10,600			8,920
Prepaid expenses		1,980			2,460
Total current assets		33,348			25,970
Property and equipment:
Land		7,800			7,800
Buildings and equipment, net		21,000			20,800
Total property and equipment		28,800			28,600
Total assets	$	62,148		$	54,570
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,300		$	9,200
Accrued liabilities		960			1,600
Notes payable, short term		480			480
Total current liabilities		12,740			11,280
Long-term liabilities:
Bonds payable		8,750			8,750
Total liabilities		21,490			20,030
Stockholders' equity:
Common stock		980			980
Additional paid-in capital		5,100			5,100
Total paid-in capital		6,080			6,080
Retained earnings		34,578			28,460
Total stockholders' equity		40,658			34,540
Total liabilities and stockholders' equity	$	62,148		$	54,570

Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)

This Year

Last Year

  Sales

$

97,000

$

92,000

  Cost of goods sold

61,000

57,000

  Gross margin

36,000

35,000

  Selling and administrative expenses:

     Selling expenses

10,300

9,800

     Administrative expenses

13,800

12,800

  Total selling and administrative expenses

24,100

22,600

  Net operating income

11,900

12,400

  Interest expense

1,050

1,050

  Net income before taxes

10,850

11,350

  Income taxes

4,340

4,540

  Net income

6,510

6,810

  Dividends to common stockholders

392

735

  Net income added to retained earnings

6,118

6,075

  Beginning retained earnings

28,460

22,385

  Ending retained earnings

$

34,578

$

28,460

Required:

Compute the following financial data for this year:

PART1.

Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

PART2.

Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

PART3.

Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

PART4.

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

Answer 1

Solution 1:

Gross margin percentage = Gross profit / Sales = $36,000 / $97,000 = 37.1%

Solution 2:

Net profit margin percentage = Net Income / Sales = $6,510 / $97,000 = 6.7%

Solution 3:

Return on total assets = Net operating income / Average total assets

Net operating income = $11,900

Average total assets = (Beginning total assets + Ending total assets) / 2 = ($62,148 + $54,570) / 2 = $58,359

Return on total assets = $11,900 / $58,359 = 20.4%

Solution 4:

Return on equity = Net Income / Average shareholder's equity

Net Income = $6,510

Average stockholder's equity = (Begining stockholder's equity + Ending stockholder's equity)/2

= ($40,658 + $34,540) / 2 = $37,599

Return on equity = $6,510 / $37,599 = 17.31%