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 900,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $23. 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	$	240		$	510
Accounts receivable, net		15,400			10,250
Inventory		10,200			8,600
Prepaid expenses		1,900			2,300
Total current assets		27,740			21,660
Property and equipment:
Land		7,000			7,000
Buildings and equipment, net		20,200			20,000
Total property and equipment		27,200			27,000
Total assets	$	54,940		$	48,660
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,500		$	8,800
Accrued liabilities		800			1,200
Notes payable, short term		400			400
Total current liabilities		11,700			10,400
Long-term liabilities:
Bonds payable		5,000			5,000
Total liabilities		16,700			15,400
Stockholders' equity:
Common stock		900			900
Additional paid-in capital		4,700			4,700
Total paid-in capital		5,600			5,600
Retained earnings		32,640			27,660
Total stockholders' equity		38,240			33,260
Total liabilities and stockholders' equity	$	54,940		$	48,660

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	89,000		$	84,000
Cost of goods sold		57,000			53,000
Gross margin		32,000			31,000
Selling and administrative expenses:
Selling expenses		9,500			9,000
Administrative expenses		13,000			12,000
Total selling and administrative expenses		22,500			21,000
Net operating income		9,500			10,000
Interest expense		600			600
Net income before taxes		8,900			9,400
Income taxes		3,560			3,760
Net income		5,340			5,640
Dividends to common stockholders		360			720
Net income added to retained earnings		4,980			4,920
Beginning retained earnings		27,660			22,740
Ending retained earnings	$	32,640		$	27,660

Required:

Compute the following financial data for this year:

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

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

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 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

Answer 1

1	Gross margin percentage	36.0%
2	Net margin percentage	6.0%
3	Return on Total Assets	17.3%
4	Return on Equity	9.3%

Working:

Gross margin percentage			Gross profit / Sales
			32,000 / 89,000
			36.0%
Net margin percentage			Net income / Sales
			5340 / 89,000
			6.0%
Return on total Assets			Operating Income / Total net assets
			9,500 / 54,940
			17.3%
Return on equity			Net income / Stockholders' equity
			5,340 / 38,240
			9.3%