I need help finding the total asset turnover and financial leverage! The compara

Question

I need help finding the total asset turnover and financial leverage!

The comparative financial statements for Prince Company are below: Year 2 Income statement: Sales revenue Cost of goods sold Gross profit Operating expenses and interest expense Pretax income Income tax Net income Balance sheet: Cash Accounts receivable (net) Inventory Property and equipment (net) Total assets Current liabilities (no interest) Long-term liabilities (10% interest) Common stock ($5 par value, 6,000 shares outstanding) Retained earnings Total liabilities and stockholders' equity 190,000 112,000 78,000 56,000 22,000 8,000 $ 14,000 $167,000 100,000 67,000 53,000 14,000 4,000 $ 10,000 $4,000 14,000 40,000 45,000 $103,000 $ 16,000 45,000 30,000 12,000 $103,000 $ 7,000 18,000 34,000 38,000 $ 97,000 $17,000 45,000 30,000 5,000 $ 97,000

Explanation / Answer

Answer:-Total asset turnover =Net sales/Average total assets

=$190000/($97000+$103000)/2

=$190000/$100000

=1.9 times

Financial Leverage =Earning before interest & tax/Earnings before tax

=Net income+ Interest + Tax/Net income + Tax

=$14000+($45000*10%)+$8000/$14000+$8000

=$14000+$4500+$8000/$22000

=$26500/$22000

=1.20 times

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