Question

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		190,000
Merchandise inventory		360,000
Prepaid expenses		7,000
Total current assets		578,000
Property and equipment, net		890,000
Total assets	$	1,468,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	230,000
Bonds payable, 8%		400,000
Total liabilities		630,000
Stockholders’ equity:
Common stock, $5 per value	$	160,000
Retained earnings		678,000
Total stockholders’ equity		838,000
Total liabilities and stockholders’ equity	$	1,468,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,260,000
Cost of goods sold		1,220,000
Gross margin		1,040,000
Selling and administrative expenses		650,000
Net operating income		390,000
Interest expense		32,000
Net income before taxes		358,000
Income taxes (30%)		107,400
Net income	$	250,600

Account balances at the beginning of the year were: accounts receivable, $140,000; and inventory, $350,000. All sales were on account. Assets at the beginning of the year totaled $1,050,000, and the stockholders’ equity totaled $655,000.

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?

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

Answer 1