Exercise 15-9 Financial Ratios for Assessing Profitability and Managing Debt (LO15-4, LO15-5) The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash Accounts receivable, net Merchandise inventory Prepaid expenses Total current assets Property and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 10% Total liabilities Stockholders equity: Common stock, $5 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 19,000 260,000 320,000 10,000 609,000 870,000 $1,479,000 $ 270,000 350,000 620,000 $ 150,000 709,000 859,000 $1,479,000 Castile Products, Inc. Total stockholders' equity Total liabilities and stockholders' equity 859,000 $1,479,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income $2,280,000 1,240,000 1,040,000 640,000 400,000 35,000 365,000 109,500 $ 255,500 Account balances at the beginning of the year were: accounts receivable, $150,000; and inventory, $320,000. All sales were on account. Assets at the beginning of the year totaled $1,010,000, and the stockholders' equity totaled $665,000. Required: Compute the following: (For Requirements 1 to 4, enter your percentage answers rounded to 2 decimal places (i.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. 5. Was financial leverage positive or negative for the year? # Account balances at the beginning of the year were: accounts receivable, $150,000; and inventory, $320,000. All sales were on account. Assets at the beginning of the year totaled $1,010,000, and the stockholders' equity totaled $665,000. Required: Compute the following: (For Requirements 1 to 4, enter your percentage answers rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) ES 1. Gross margin percentage. 2. Net profit margin percentage. 3. Return on total assets. 4. Return on equity. 5. Was financial leverage positive or negative for the year? 1. % Gross margin percentage Net profit margin percentage 2. % 3. Return on total assets % 4. Return on equity % 5. 07 Financial Leverage