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 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 companys common stock at the end of this year was $23. All of the companys 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).)