Exercise 14-5 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 940,000 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 company's common stock at the end of the year was $25. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet dollars in thousands) (dollars in thousands) This Year Last year Cash cool Assets Current assets: Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Long-term liabilities Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital Total paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 10.900 $ 9.000 1.400 2,220 10,840 10,000 20,840 of 940 4.900 5.840 28.060 33,900 $54,740 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) This Year Last Year Sales $93,000 $88,000 59,000 55.000 Cost of goods sold Gross margin 34,000 33,000 Selling and administrative expenses Selling expenses 9.900 9.400 Administrative expenses 13,400 12.400 Total selling and administrative expenses 23,300 21,800 Net operating income 10,700 11,200 Interest expense 1,200 1,200 Net Income before taxes 9,500 10,000 Income taxes 3,800 4,000 Net income 5,700 6.000 Dividends to common stockholders 376 752 Net income added to retained earnings 5,324 5,248 Beginning retained earnings 28,060 22,812 Ending retained earnings $33,384 $28,060 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 (.e., 0.1234 should be entered as 12.34).) 1. Gross margin percentage 2. Net profit margin percentage 3. Return on total assets 4. Return on equity
