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 970,000 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 the year was $26. 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	$	3,302		$	4,230
Accounts receivable, net		16,100			9,100
Inventory		10,550			8,880
Prepaid expenses		1,970			2,440
Total current assets		31,922			24,650
Property and equipment:
Land		7,700			7,700
Buildings and equipment, net		20,900			20,700
Total property and equipment		28,600			28,400
Total assets	$	60,522		$	53,050
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,200		$	9,150
Accrued liabilities		940			1,550
Notes payable, short term		470			470
Total current liabilities		12,610			11,170
Long-term liabilities:
Bonds payable		7,500			7,500
Total liabilities		20,110			18,670
Stockholders' equity:
Common stock		970			970
Additional paid-in capital		5,050			5,050
Total paid-in capital		6,020			6,020
Retained earnings		34,392			28,360
Total stockholders' equity		40,412			34,380
Total liabilities and stockholders' equity	$	60,522		$	53,050

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	96,000		$	91,000
Cost of goods sold		60,500			56,500
Gross margin		35,500			34,500
Selling and administrative expenses:
Selling expenses		10,200			9,700
Administrative expenses		13,700			12,700
Total selling and administrative expenses		23,900			22,400
Net operating income		11,600			12,100
Interest expense		900			900
Net income before taxes		10,700			11,200
Income taxes		4,280			4,480
Net income		6,420			6,720
Dividends to common stockholders		388			776
Net income added to retained earnings		6,032			5,944
Beginning retained earnings		28,360			22,416
Ending retained earnings	$	34,392		$	28,360

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).)

Answer 1

1	Gross Margin Percentage		Gross Margin/Sales * 100
	Gross Margin Percentage		35500/96000*100
	Gross Margin Percentage		37.0	%
2	Net Proft Margin Percentage		Net Profit/Sales*100
	Net Proft Margin Percentage		6420/96000*100
	Net Proft Margin Percentage		6.7	%
3	Return on Total Assets		Net Profit/Average total assets*100
	Return on Total Assets		6420/((60522+53050)/2)*100
	Return on Total Assets		11.3	%
4	Return on Equity		Net Profit/Shareholders' Equity*100
	Return on Equity		6420/40412*100
	Return on Equity		15.89	%