Question

Wildhorse Medical manufactures hospital beds and other institutional furniture. The company’s comparative balance sheet and income statement for 2015 and 2016 follow.

Wildhorse Medical Comparative Balance Sheet As of December 31
		2016		2015
Assets
Current assets
Cash		$359,000		$417,450
Accounts receivable, net		1,066,200		776,450
Inventory		722,000		681,000
Other current assets		351,000		247,000
Total current assets		2,498,200		2,121,900
Property, plant, & equipment, net		8,817,440		8,451,115
Total assets		$11,315,640		$10,573,015
Liabilities and Stockholders’ Equity
Current liabilities		$3,174,000		$2,846,000
Long-term debt		3,702,600		3,892,600
Total liabilities		6,876,600		6,738,600
Preferred stock, $5 par value		59,300		59,300
Common stock, $0.25 par value		111,000		103,850
Retained earnings		4,268,740		3,671,265
Total stockholders’ equity		4,439,040		3,834,415
Total liabilities and stockholders’ equity		$11,315,640		$10,573,015

Wildhorse Medical Comparative Income Statement and Statement of Retained Earnings For the Year
		2016		2015
Sales revenue (all on account)		$10,100,000		$9,614,000
Cost of goods sold		5,394,000		5,298,700
Gross profit		4,706,000		4,315,300
Operating expenses		2,840,250		2,634,200
Net operating income		1,865,750		1,681,100
Interest expense		383,000		308,650
Net income before taxes		1,482,750		1,372,450
Income taxes (30%)		444,825		411,735
Net income		$1,037,925		$960,715
Dividends paid
Preferred dividends		29,450		29,450
Common dividends		411,000		455,000
Total dividends paid		440,450		484,450
Net income retained		597,475		476,265
Retained earnings, beginning of year		3,671,265		3,195,000
Retained earnings, end of year		$4,268,740		$3,671,265

Calculate the following profitability ratios for 2016. (Round answers to 1 decimal place, e.g. 50.1%.)

a.	Gross margin percentage		Enter percentages %
b.	Return on assets		Enter percentages %
c.	Return on common stockholders’ equity		Enter percentages %

Answer 1

a. Gross margin percentage = Gross margin / Sales revenue *100

Gross margin percentage = $4,706,000 / 10,100,000 *100 = 46.6%

b. Return on assets = Net income / Average total assets *100

Return on assets = $1,037,925 / $(11,315,640+10,573,015 / 2)

Return on assets = $1,037,925 / 10,944,327.5 * 100

Return on assets = 9.5%

c. Return on common stockholders' equity = Net income / Average common stockholders' equity

Return on common stockholders' equity = $1,037,925 / $(3,775,115+4,379,740 / 2)

Return on common stockholders' equity = $1,037,925 / $4,077,427.5 * 100

Return on common stockholders' equity = 25.5%