Exercise 16-5 (Algo) Financial Ratios for Assessing Profitability [LO16-5]

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 1,000,000 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 $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	$ 1,300	$ 1,610
Accounts receivable, net	16,400	9,250
Inventory	10,700	9,000
Prepaid expenses	2,000	2,500
Total current assets	30,400	22,360
Property and equipment:
Land	8,000	8,000
Buildings and equipment, net	21,200	21,000
Total property and equipment	29,200	29,000
Total assets	$ 59,600	$ 51,360
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 11,500	$ 9,300
Accrued liabilities	1,000	1,700
Notes payable, short term	500	500
Total current liabilities	13,000	11,500
Long-term liabilities:
Bonds payable	5,000	5,000
Total liabilities	18,000	16,500
Stockholders' equity:
Common stock	1,000	1,000
Additional paid-in capital	5,200	5,200
Total paid-in capital	6,200	6,200
Retained earnings	35,400	28,660
Total stockholders' equity	41,600	34,860
Total liabilities and stockholders' equity	$ 59,600	$ 51,360

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year	Last Year
Sales	$ 99,000	$ 94,000
Cost of goods sold	62,000	58,000
Gross margin	37,000	36,000
Selling and administrative expenses:
Selling expenses	10,500	10,000
Administrative expenses	14,000	13,000
Total selling and administrative expenses	24,500	23,000
Net operating income	12,500	13,000
Interest expense	600	600
Net income before taxes	11,900	12,400
Income taxes	4,760	4,960
Net income	7,140	7,440
Dividends to common stockholders	400	800
Net income added to retained earnings	6,740	6,640
Beginning retained earnings	28,660	22,020
Ending retained earnings	$ 35,400	$ 28,660

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).)

1. Gross margin percentage		%
2. Net profit margin percentage		%
3. Return on total assets		%
4. Return on equity		%