Exercise 14-5 (Algo) Financial Ratios for Assessing Profitability [LO14-5]

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 870,000 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 companys common stock at the end of this year was $22. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year	Last Year
Assets
Current assets:
Cash	$ 2,242	$ 3,130
Accounts receivable, net	15,100	10,100
Inventory	10,050	8,480
Prepaid expenses	1,870	2,240
Total current assets	29,262	23,950
Property and equipment:
Land	6,700	6,700
Buildings and equipment, net	19,900	19,700
Total property and equipment	26,600	26,400
Total assets	$ 55,862	$ 50,350
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 10,200	$ 8,650
Accrued liabilities	740	1,050
Notes payable, short term	370	370
Total current liabilities	11,310	10,070
Long-term liabilities:
Bonds payable	7,500	7,500
Total liabilities	18,810	17,570
Stockholders' equity:
Common stock	870	870
Additional paid-in capital	4,550	4,550
Total paid-in capital	5,420	5,420
Retained earnings	31,632	27,360
Total stockholders' equity	37,052	32,780
Total liabilities and stockholders' equity	$ 55,862	$ 50,350

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year	Last Year
Sales	$ 86,000	$ 81,000
Cost of goods sold	55,500	51,500
Gross margin	30,500	29,500
Selling and administrative expenses:
Selling expenses	9,200	8,700
Administrative expenses	12,700	11,700
Total selling and administrative expenses	21,900	20,400
Net operating income	8,600	9,100
Interest expense	900	900
Net income before taxes	7,700	8,200
Income taxes	3,080	3,280
Net income	4,620	4,920
Dividends to common stockholders	348	696
Net income added to retained earnings	4,272	4,224
Beginning retained earnings	27,360	23,136
Ending retained earnings	$ 31,632	$ 27,360

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).)