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

ID: 2499328 • Letter: S

Question

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 $5,000,000; total stockholders’ equity was $2,000,000. The company’s tax rate is 30%.

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:

1. Return on assets = Net income / Average total assets

Average total assets =( 5,000,000 + 5,200,000 ) /2 = $ 5,100,000

Therefore Return on assets = 390,000 / 5,100,000 x 100 = 7.6%

2. Return on equity = Net income / Average stockholders' equity = 390,000 / 2,100,000 x 100 = 18.6%

3. Financial leverage is positive as part of the assets is financed by debt.

Debt - equity ratio is 680: 2200 or 17: 55. In other words, it is greater than zero.

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