Selected financial data from the June 30 year-end statements of Satford Company

Question

Selected financial data from the June 30 year-end statements of Satford Company are given below: Total assets at the beginning of the year were $5,700.000; total stockholders' equity was $2,400,000. 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).) Return on total assets Compute the return on equity. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) Return on equality Is financial leverage positive or negative? Positive Negative

Explanation / Answer

1. Return on total assets = Earnings before interest and taxes
Total assets

= 410000+70000 / 5900000

= 8.1355%

2. Return on equity = Net income / shareholders euity

= 410000/2600000

= 15.769%

3. Financial leavrage = EBIT/EBT

= 480000/410000

= $ 1.17

therefore Positive.

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