Question

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash				$	19,000
Accounts receivable, net					200,000
Merchandise inventory					330,000
Prepaid expenses					8,000
Total current assets					557,000
Property and equipment, net					880,000
Total assets				$	1,437,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities				$	290,000
Bonds payable, 12%					360,000
Total liabilities					650,000
Stockholders’ equity:
Common stock, $5 par value				$	120,000
Retained earnings					667,000
Total stockholders’ equity					787,000
Total liabilities and stockholders' equity				$	1,437,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,170,000
Cost of goods sold		1,200,000
Gross margin		970,000
Selling and administrative expenses		640,000
Net operating income		330,000
Interest expense		43,200
Net income before taxes		286,800
Income taxes (30%)		86,040
Net income	$	200,760

Account balances at the beginning of the year were: accounts receivable, $230,000; 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 $645,000.

Required:

Compute the following:

1.	Gross margin percentage. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

2.	Net profit margin percentage. (Round your answer to the nearest whole percentage place (i.e., 0.1234 should be entered as 12%).)

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 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Answer 1

1.Gross margin

Gross margin percentage = (Total Revenue - Cost of Goods sold) / Total Revenue *100

Total revenue =$2,170,000, Cost of Goods sold = $1,200,000

Gross margin percentage = ($2,170,000 - $1,200,000) / $2,170,000 *100

=($970,000 /$2,170,000) * 100

= 0.4470 * 100

Gross margin Percentage = 44.7

2.Net Profit margin percentage

Net profit margin = Net Profit / Revenue

Net Profit = $200,760 , Revenue $2,170,000

Net profit maargin = $200,760 / $2,170,000

= 0.0925

   Net Profit Margin= 9.25%

3.Return on total assets

Return on Assets = EBIT /Average total assets

EBIT = $330,000 , Average total assets =($1,050,000+ $1,437,000) /2 = $1,243,500

Return on assets = $330,000 / $1,243,500

= 0.265

Return on Assets = 26.5

4. Return on Equity

Return on Equity = Net Income / Shareholders Equity

Net Income = $200,760 , Share holders Equity =$787,000

Return on Equity = $200,760/ 787,000

=0.255

Return on Equity = 25.5