The financial statements for Castile Products Inc are given

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

     Account balances at the beginning of the year were: accounts receivable, $180,000; and inventory, $270,000. All sales were on account. Assets at the beginning of the year totaled $1,070,000, and the stockholders’ equity totaled $695,000.

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?

Solution

Solution :

1. Gross margin percentage. = (Gross margin / Sales ) x 100

= 910,000 / 2,170,000

= 41.93%

2. Net profit margin percentage. = (Net profit / Sales) x 100

= (195,300 / 2,170,000) x 100

= 9%

3. Return on total assets. = (Net Income / Average total assets) x 100

= (195,300 / 1,256,500) x 100

= 15.54%

4. Return on equity = (Net income / Average equity) x 100

= (195,300 / 814,000) x 100

= 23.99%

5. Return on total assets is more than interest on borrowings, hence financial leverage was positive