Question

EXERCISE 15-8 Selected Financial Ratios (L015-2, LO15-3, L015-4] The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash.. Accounts receivable, net ................ Merchandise inventory ................. Prepaid expenses ..................... Total current assets ...................... Property and equipment, net ............... Total assets $ 6,500 35,000 70,000 3,500 115,000 185,000 $300,000 $ 50,000 80,000 130,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities .......... Bonds payable, 10% .......... Total liabilities ................. Stockholders' equity: Common stock, $5 per value ............. Retained earnings .... Total stockholders' equity ................. Total liabilities and equity ................. $ 30,000 140,000 170,000 $300,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales ..... Cost of goods sold... Gross margin Selling and administrative expenses......... Net operating income ....... Interest expense......................... Net income before taxes .................. Income taxes (30%) Net income ............ ................ $420,000 292,500 127,500 89,500 38,000 8,000 30,000 9,000 $ 21,000 Account balances at the beginning of the year were: accounts receivable, $25,000; and inven tory, $60,000. All sales were on account. EXERCISE 15-9 Financial Ratios for Assessing Profitability and Managing Debt [L015-4, LO15-5] Refer to the financial statements for Castile Products, Inc., in Exercise 15-8. Assets at the begin- ning of the year totaled $280,000, and the stockholders' equity totaled $161,600. Required: Compute the following: 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? Explain.