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 880,000 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	$ 3,508	$ 4,340
Accounts receivable, net	15,200	10,150
Inventory	10,100	8,520
Prepaid expenses	1,880	2,260
Total current assets	30,688	25,270
Property and equipment:
Land	6,800	6,800
Buildings and equipment, net	20,000	19,800
Total property and equipment	26,800	26,600
Total assets	$ 57,488	$ 51,870
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 10,300	$ 8,700
Accrued liabilities	760	1,100
Notes payable, short term	380	380
Total current liabilities	11,440	10,180
Long-term liabilities:
Bonds payable	8,750	8,750
Total liabilities	20,190	18,930
Stockholders' equity:
Common stock	880	880
Additional paid-in capital	4,600	4,600
Total paid-in capital	5,480	5,480
Retained earnings	31,818	27,460
Total stockholders' equity	37,298	32,940
Total liabilities and stockholders' equity	$ 57,488	$ 51,870

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year	Last Year
Sales	$ 87,000	$ 82,000
Cost of goods sold	56,000	52,000
Gross margin	31,000	30,000
Selling and administrative expenses:
Selling expenses	9,300	8,800
Administrative expenses	12,800	11,800
Total selling and administrative expenses	22,100	20,600
Net operating income	8,900	9,400
Interest expense	1,050	1,050
Net income before taxes	7,850	8,350
Income taxes	3,140	3,340
Net income	4,710	5,010
Dividends to common stockholders	352	704
Net income added to retained earnings	4,358	4,306
Beginning retained earnings	27,460	23,154
Ending retained earnings	$ 31,818	$ 27,460

Required:

Compute the following financial data for this year:

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).)