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 $ 22,000 Accounts receivable, net 210,000 Merchandise inventory 370,000 Prepaid expenses 7,000 Total current assets 609,000 Property and equipment, net 810,000 Total assets $ 1,419,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 240,000 Bonds payable, 11% 390,000 Total liabilities 630,000 Stockholders’ equity: Common stock, $10 per value $ 160,000 Retained earnings 629,000 Total stockholders’ equity 789,000 Total liabilities and stockholders’ equity $ 1,419,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales $ 2,140,000 Cost of goods sold 1,190,000 Gross margin 950,000 Selling and administrative expenses 640,000 Net operating income 310,000 Interest expense 42,900 Net income before taxes 267,100 Income taxes (30%) 80,130 Net income $ 186,970 Account balances at the beginning of the year were: accounts receivable, $170,000; and inventory, $300,000. All sales were on account. Assets at the beginning of the year totaled $1,010,000, and the stockholders’ equity totaled $715,000. Required: Compute the following: (For Requirements 1 to 4, enter your percentage answers rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) 1. Gross margin percentage. 2. Net profit margin percentage. 3. Return on total assets. 4. Return on equity. 5. Was financial leverage positive or negative for the year?

Homework Answers

Answer #1
1 Gross Profit Margin = Net Sales - COGS
Net Sales
Gross Profit Margin = $ 21,40,000- $ 11,90,000
$ 21,40,000
Gross Profit Margin = $ 950,000
$ 21,40,000
Gross Profit Margin = 44.39%
2 Net Profit Margin = Net Income
Net Sales
Net Profit Margin = $ 186,970
$ 21,40,000
Net Profit Margin = 8.74%
3 Return on Total Assets = Net Income
Total Assets
Return on Total Assets = $ 186,970
$ 14,19,000
Return on Total Assets = 13.18%
4 Return on Equity = Net Income
Shareholders Equity
Return on Equity = $ 186,970
$ 789,000
Return on Equity = 23.70%
Note:- First Four Parts Answered as per the Guidelines
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