Question

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 900,000 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 company’s common stock at the end of this year was $23. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	240		$	510
Accounts receivable, net		15,400			10,250
Inventory		10,200			8,600
Prepaid expenses		1,900			2,300
Total current assets		27,740			21,660
Property and equipment:
Land		7,000			7,000
Buildings and equipment, net		20,200			20,000
Total property and equipment		27,200			27,000
Total assets	$	54,940		$	48,660
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,500		$	8,800
Accrued liabilities		800			1,200
Notes payable, short term		400			400
Total current liabilities		11,700			10,400
Long-term liabilities:
Bonds payable		5,000			5,000
Total liabilities		16,700			15,400
Stockholders' equity:
Common stock		900			900
Additional paid-in capital		4,700			4,700
Total paid-in capital		5,600			5,600
Retained earnings		32,640			27,660
Total stockholders' equity		38,240			33,260
Total liabilities and stockholders' equity	$	54,940		$	48,660

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	89,000		$	84,000
Cost of goods sold		57,000			53,000
Gross margin		32,000			31,000
Selling and administrative expenses:
Selling expenses		9,500			9,000
Administrative expenses		13,000			12,000
Total selling and administrative expenses		22,500			21,000
Net operating income		9,500			10,000
Interest expense		600			600
Net income before taxes		8,900			9,400
Income taxes		3,560			3,760
Net income		5,340			5,640
Dividends to common stockholders		360			720
Net income added to retained earnings		4,980			4,920
Beginning retained earnings		27,660			22,740
Ending retained earnings	$	32,640		$	27,660

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).)

.

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 990,000 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 company’s common stock at the end of this year was $27.50. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	5,834		$	6,650
Accounts receivable, net		16,300			9,200
Inventory		10,650			8,960
Prepaid expenses		1,990			2,480
Total current assets		34,774			27,290
Property and equipment:
Land		7,900			7,900
Buildings and equipment, net		21,100			20,900
Total property and equipment		29,000			28,800
Total assets	$	63,774		$	56,090
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,400		$	9,250
Accrued liabilities		980			1,650
Notes payable, short term		490			490
Total current liabilities		12,870			11,390
Long-term liabilities:
Bonds payable		10,000			10,000
Total liabilities		22,870			21,390
Stockholders' equity:
Common stock		990			990
Additional paid-in capital		5,150			5,150
Total paid-in capital		6,140			6,140
Retained earnings		34,764			28,560
Total stockholders' equity		40,904			34,700
Total liabilities and stockholders' equity	$	63,774		$	56,090

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	98,000		$	93,000
Cost of goods sold		61,500			57,500
Gross margin		36,500			35,500
Selling and administrative expenses:
Selling expenses		10,400			9,900
Administrative expenses		13,900			12,900
Total selling and administrative expenses		24,300			22,800
Net operating income		12,200			12,700
Interest expense		1,200			1,200
Net income before taxes		11,000			11,500
Income taxes		4,400			4,600
Net income		6,600			6,900
Dividends to common stockholders		396			792
Net income added to retained earnings		6,204			6,108
Beginning retained earnings		28,560			22,452
Ending retained earnings	$	34,764		$	28,560

Required:

Compute the following financial data for this year:

1. Earnings per share. (Round your answer to 2 decimal places.)

2. Price-earnings ratio. (Round your intermediate calculations and final answer to 2 decimal places.)

3. Dividend payout ratio. (Round your intermediate calculations and final answer to 2 decimal places.)

4. Dividend yield ratio. (Round your intermediate calculations and final answer to 2 decimal places.)

5. Book value per share. (Round your answer to 2 decimal places.)

Answer 1

PART - 1

1. Gross margin percentage

Gross margin percentage = [ Gross Profit / Net Sales ] x 100

= [ $32000 / 89000 ] x 100

= 35.955%

= 36% (Rounded)

2. Net profit margin percentage.

Net profit margin percentage = [ Net Income / Sales ] x 100

= [ $ 5,340 / 89000 ] x 100

= 6%

3. Return on total assets

Return on total assets = Net Income / Average Total Assets

= $5340 / [(54,940         + 48,660) / 2 ]

= $5340 / 51800

= 10.3%

4. Return on equity

Return on equity = [ Net Income / Average Common stockholders equity ] x 100

= [ $5340 / [ (38,240 + 33,260) / 2 ] ] x 100

= [ $5340 / 35750 ] x 100

= 14.94%

PART – 2

1.Earnings per share.

Earning per share = Net income – Preferred dividends/Average number of common shares outstanding

= $6,600 / 990 Shares

= $6.67 per share

2.Price-earnings ratio.

Price earnings ratio = Market price per share/Earnings per share

= $27.50 / $6.67

= 4.12 Times

3.Dividend payout ratio

Dividends payout ratio = Dividends per share/Earning per share

= [ $0.40 / $6.67 per share ] x 100

= 6%

4. Dividend yield ratio

Dividend yield ratio = Dividend per share / Market price per share

= [ $0.40 per share / $27.5 per share ] x 100

= 1.45%

5.Book value per share.

Book value per share = Total Common stockholders Equity / Common shares outstanding

= $40,904 / 990 Shares

= $41.32 per share