Home / Questions / EXERCISE 15 9 Selected Financial Ratios for Common Stockholders LO2 Selected financial dat...
EXERCISE 15–9 Selected Financial Ratios for Common Stockholders [LO2]
Selected financial data from the September 30 year-end statements of Kosanka Company are given below:
Total assets . . . . . . . . . . . . . . . . . . . . . . |
$5,000,000 |
Long-term debt (12% interest rate) . . . . . |
$750,000 |
Preferred stock, $100 par, 7% . . . . . . . . |
$800,000 |
Total stockholders’ equity . . . . . . . . . . . . |
$3,100,000 |
Interest paid on long-term debt . . . . . . . |
$90,000 |
Net income . . . . . . . . . . . . . . . . . . . . . . . |
$470,000 |
Total assets at the beginning of the year were $4,800,000; total stockholders’ equity was
$2,900,000. There has been no change in preferred stock during the year. The company’s tax rate is 30%.
Required:
1. Compute the return on total assets.
2. Compute the return on common stockholders’ equity.
3. Is the company’s financial leverage positive or negative? Explain.
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