Exercise 13-11 Financial Ratios for Assessing Profitability and Managing Debt [L

ID: 2404494 • Letter: E

Question

Exercise 13-11 Financial Ratios for Assessing Profitability and Managing Debt [LO13-4, LO13-5]

Selected financial data from the June 30 year-end statements of Safford Company are given below:

Total assets at the beginning of the year were $5,400,000; total stockholders’ equity was $1,900,000. The company’s tax rate is 35%.

Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

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

Selected financial data from the June 30 year-end statements of Safford Company are given below:

Return on total assets

=(Net income + [Interest expense × (1 ? Tax rate)])/Average total Asset

=(370000+(63800*(1-.35))/((5,600,000+5,400,000)/2)

=7.5%

Compute the return on equity

(Net income ? Preferred dividends)/Average common stockholder equity

370,000/(2,100,000+1,900,000)

=9.3%