Question

2015 2014 Income statement: $190,200* $168,700 Sales revenue Cost of goods sold 112,800 100,200 Gross profit Operating expenses and interest expense 77,400 56,700 68,500 53,700 20,700 14,800 Pretax income 3,550 Income tax 7,100 $13,600 $11,250 Net income Balance sheet $ 6,000 $ 6,800 Cash Accounts receivable (net) Inventory Operational assets (net) 14,400 41,900 16,900 33,900 46,000 37,800 $108,300 95,400 Current liabilities (no interest) Long-term liabilities (10% interest) Common stock (par $5) Retained earnings $14,900 $15,900 44,000 44,000 29,400 29.400 20,000 6,100 $108,300 95,400 *One-third was credit sales.

Calculate the following:

- return on assets percentage

- financial leverage percentage

Answer 1

Return on asset = (Net income / Average total assets) × 100

Average total assets = (95,400 + 108,300) / 2

                                    = 203,700 / 2

                                    = $101,850

Return on asset = ($13,600 / $101,850) × 100

                        = $1,360,000 / $101,850

                        = 13.35% (Answer)

Financial leverage = (Total debt / Stockholders’ equity) × 100

                               = [(14,900 + 44,000) / (29,400 + 20,000)] × 100

                               = (58,900 / 49,400) × 100

                               = 5,890,000 / 49,400

                               = 119.23% (Answer)