Exercise 14-5 (Static) 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 800,000 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 $18. All of the companys sales are on account.

\begin{tabular}{|c|c|c|} \hline \begin{tabular}{l} Weller Corporation \\ Comparative Balance Sheet \\ (dollars in thousands) \end{tabular} & This Year & Last Year \\ \hline \multicolumn{3}{|l|}{ Assets } \\ \hline \multicolumn{3}{|l|}{ Current assets: } \\ \hline Cash & $1,280 & $1,560 \\ \hline Accounts receivable, net & 12,300 & 9,100 \\ \hline Inventory & 9,700 & 8,200 \\ \hline Prepaid expenses & 1,800 & 2,100 \\ \hline Total current assets & 25,080 & 20,960 \\ \hline \multicolumn{3}{|l|}{ Property and equipment: } \\ \hline Land & 6,000 & 6,000 \\ \hline Buildings and equipment, net & 19,200 & 19,000 \\ \hline Total property and equipment & 25,200 & 25,000 \\ \hline Total assets & $50,280 & $45,960 \\ \hline \multicolumn{3}{|l|}{ Liabilities and Stockholders' Equity } \\ \hline Accounts payable & $9,500 & $8,300 \\ \hline Accrued liabilities & 600 & 700 \\ \hline Notes payable, short term & 300 & 300 \\ \hline Total current liabilities & 10,400 & 9,300 \\ \hline \multicolumn{3}{|l|}{ Long-term liabilities: } \\ \hline Bonds payable & 5,000 & 5,000 \\ \hline Total liabilities & 15,400 & 14,300 \\ \hline \multicolumn{3}{|l|}{ Stockholders' equity: } \\ \hline Common stock & 800 & 800 \\ \hline Additional paid-in capital & 4,200 & 4,200 \\ \hline Total paid-in capital & 5,000 & 5,000 \\ \hline Retained earnings & 29,880 & 26,660 \\ \hline Total stockholders' equity & 34,880 & 31,660 \\ \hline Total liabilities and stockholders' equity & $50,280 & $45,960 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline \begin{tabular}{c} Weller Corporation \\ Comparative Income Statement and Reconciliation \\ (dollars in thousands) \end{tabular} & & \\ \hline & This Year & Last Year \\ \hline Cost of goods sold & 52,000 & 48,000 \\ \hline Gross margin & 27,000 & 26,000 \\ \hline Administrative expenses & 12,000 & 11,000 \\ \hline Total selling and administrative expenses & 20,500 & 19,000 \\ \hline Net operating income & 6,500 & 7,000 \\ \hline Interest expense & 600 & 600 \\ \hline Net income before taxes & 5,900 & 6,400 \\ \hline Net income added to retained earnings & 3,220 & 3,240 \\ \hline Beginning retained earnings & 26,660 & 23,420 \\ \hline Ending retained earnings & $29,880 & $26,660 \\ \hline \end{tabular} 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).)