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		180,000
Merchandise inventory		340,000
Prepaid expenses		9,000
Total current assets		550,000
Property and equipment, net		870,000
Total assets	$	1,420,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	290,000
Bonds payable, 10%		360,000
Total liabilities		650,000
Stockholders equity:
Common stock, $5 par value	$	170,000
Retained earnings		600,000
Total stockholders equity		770,000
Total liabilities and stockholders equity	$	1,420,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,200,000
Cost of goods sold		1,210,000
Gross margin		990,000
Selling and administrative expenses		610,000
Net operating income		380,000
Interest expense		36,000
Net income before taxes		344,000
Income taxes (30%)		103,200
Net income	$	240,800

Account balances at the beginning of the year were: accounts receivable, $180,000; and inventory, $360,000. All sales were on account. Assets at the beginning of the year totaled $1,020,000, and the stockholders equity totaled $655,000.

Required:

Compute the following: (For Requirements 1 to 4, enter your percentage answers rounded to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)

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?