Question
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?
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