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 840,000 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 $20. 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	$	6,344		$	6,400
Accounts receivable, net		12,700			9,300
Inventory		9,900			8,360
Prepaid expenses		1,840			2,180
Total current assets		30,784			26,240
Property and equipment:
Land		6,400			6,400
Buildings and equipment, net		19,600			19,400
Total property and equipment		26,000			25,800
Total assets	$	56,784		$	52,040
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	9,900		$	8,500
Accrued liabilities		680			900
Notes payable, short term		340			340
Total current liabilities		10,920			9,740
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		20,920			19,740
Stockholders' equity:
Common stock		840			840
Additional paid-in capital		4,400			4,400
Total paid-in capital		5,240			5,240
Retained earnings		30,624			27,060
Total stockholders' equity		35,864			32,300
Total liabilities and stockholders' equity	$	56,784		$	52,040

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	83,000		$	78,000
Cost of goods sold		54,000			50,000
Gross margin		29,000			28,000
Selling and administrative expenses:
Selling expenses		8,900			8,400
Administrative expenses		12,400			11,400
Total selling and administrative expenses		21,300			19,800
Net operating income		7,700			8,200
Interest expense		1,200			1,200
Net income before taxes		6,500			7,000
Income taxes		2,600			2,800
Net income		3,900			4,200
Dividends to common stockholders		336			630
Net income added to retained earnings		3,564			3,570
Beginning retained earnings		27,060			23,490
Ending retained earnings	$	30,624		$	27,060

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

	All amounts in $
1	Gross margin percentage	Gross margin / Sales
	Gross margin	29000
	Sales	83000
	Gross margin percentage	29000/83000
	Gross margin percentage	34.9%
2	Net profit margin percentage	Net profit / Sales
	Net profit margin percentage	(Revenue - Cost of goods sold - Operating expenses- Other expenses- Interest-Taxes)/Sales
	Net profit	3900
	Sales	83000
	Net profit margin percentage	3900/83000
	Net profit margin percentage	4.7%
3	Return on total assets	EBIT / Average total assets
	EBIT (Net operating income)	7700
	Average assets = (Opening+Closing )/2	(52040+56784)/2
	Average total assets	54412
	Return on total assets	7700/54412
	Return on total assets	14.2%
4	Return on equity	Net income / Average shareholder's equity
	Net income (income available to shareholders; hence, income before dividends has been considered)	3900
	Average shareholder's equity = (Opening+Closing)/2	(5240+5240)/2
	Average shareholder's equity	5240
	Return on equity	3900/5240
	Return on equity	74.4%