Exercise 8.10

Selected Financial data from the September 30 year-end statements of Green Company are given below:

Interest expense..............................................90,000

Profit...............................................................470,000

Total assets......................................................5,000,000

12% interest long-term debt*..........................750,000

7% Preference shares, P100 par.......................800,000

Total Shareholder's equity................................3,100,000

The company's tax rate is 30%. Total assets at the beginning of the year was P4,800,000 and total shareholder's equity was P2,900,000. There has been no change on the preference shares during the year.

-This is the onlyinterest bearingliability Green Company has.

Required:

1. Compute the return on average total assets.
2. Compute the return on average ordinary shareholder's equity
3. Is the company's financial leverage positive or negative? Explain.