Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

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 $ 21,000
Accounts receivable, net 230,000
Merchandise inventory 300,000
Prepaid expenses 10,000
Total current assets 561,000
Property and equipment, net 840,000
Total assets $ 1,401,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities $ 300,000
Bonds payable, 10% 310,000
Total liabilities 610,000
Stockholders equity:
Common stock, $5 par value $ 190,000
Retained earnings 601,000
Total stockholders equity 791,000
Total liabilities and stockholders equity $ 1,401,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales $ 2,280,000
Cost of goods sold 1,240,000
Gross margin 1,040,000
Selling and administrative expenses 590,000
Net operating income 450,000
Interest expense 31,000
Net income before taxes 419,000
Income taxes (30%) 125,700
Net income $ 293,300

Account balances at the beginning of the year were: accounts receivable, $220,000; 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 $645,000.

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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Internal Auditing An Integrated Approach

Authors: Richard E. Cascarino

2nd Edition

0702172693, 978-0702172694

More Books

Students also viewed these Accounting questions

Question

List the components of the strategic management process. page 72

Answered: 1 week ago