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 990,000 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 the year was $28. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	5,834		$	6,650
Accounts receivable, net		16,300			9,200
Inventory		10,650			8,960
Prepaid expenses		1,990			2,480
Total current assets		34,774			27,290
Property and equipment:
Land		7,900			7,900
Buildings and equipment, net		21,100			20,900
Total property and equipment		29,000			28,800
Total assets	$	63,774		$	56,090
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,400		$	9,250
Accrued liabilities		980			1,650
Notes payable, short term		490			490
Total current liabilities		12,870			11,390
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		22,870			21,390
Stockholders' equity:
Common stock		990			990
Additional paid-in capital		5,150			5,150
Total paid-in capital		6,140			6,140
Retained earnings		34,764			28,560
Total stockholders' equity		40,904			34,700
Total liabilities and stockholders' equity	$	63,774		$	56,090

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	98,000		$	93,000
Cost of goods sold		61,500			57,500
Gross margin		36,500			35,500
Selling and administrative expenses:
Selling expenses		10,400			9,900
Administrative expenses		13,900			12,900
Total selling and administrative expenses		24,300			22,800
Net operating income		12,200			12,700
Interest expense		1,200			1,200
Net income before taxes		11,000			11,500
Income taxes		4,400			4,600
Net income		6,600			6,900
Dividends to common stockholders		396			792
Net income added to retained earnings		6,204			6,108
Beginning retained earnings		28,560			22,452
Ending retained earnings	$	34,764		$	28,560

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).)