Exercise 15-9 Financial Ratios for Assessing Profitability and Managing Debt [LO15-4, LO15-5]

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

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash				$	21,000
Accounts receivable, net					200,000
Merchandise inventory					320,000
Prepaid expenses					7,000
Total current assets					548,000
Property and equipment, net					820,000
Total assets				$	1,368,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities				$	220,000
Bonds payable, 12%					330,000
Total liabilities					550,000
Stockholders equity:
Common stock, $5 par value				$	130,000
Retained earnings					688,000
Total stockholders equity					818,000
Total liabilities and stockholders' equity				$	1,368,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,280,000
Cost of goods sold		1,220,000
Gross margin		1,060,000
Selling and administrative expenses		600,000
Net operating income		460,000
Interest expense		39,600
Net income before taxes		420,400
Income taxes (30%)		126,120
Net income	$	294,280

Account balances at the beginning of the year were: accounts receivable, $230,000; and inventory, $280,000. All sales were on account. Assets at the beginning of the year totaled $1,010,000, and the stockholders equity totaled $715,000.

Required:

Compute the following:

1.	Gross margin percentage. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

2.	Net profit margin percentage. (Round your answer to the nearest whole percentage 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).)

4.	Return on equity. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

5.

Was financial leverage positive or negative for the year?

	Positive
	Negative