Exercise 13-5 Financial Ratios for Assessing Profitability [LO13-5] Comparative

Question

Exercise 13-5 Financial Ratios for Assessing Profitability [LO13-5]

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 930,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $24. All of the company’s sales are on account.

Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Net profit margin percentage. (Round your percentage answer to 1 decimal 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).)

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 930,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $24. All of the company’s sales are on account.

Explanation / Answer

1) Gross Margin Percentage Of this Year is

Gross Margin/ Sales *100= 33500/92000*100=36.4%

2) Net Profit Margin Percentage of this Year

Net Income/Sales*100= 5610/92000*100=6%

3) Return on Total Assets of this year

Net income/ Total Assets*100= 5610/59818*100=9.3

4) Return on equity of this year

Net income/ Total Stockholders Equity*100= 5610/38978*100= 14.39

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