Return Ratios and Leverage

The following selected data are taken from the financial statements of Redwood Enterprises:

Sales revenue $654,000

Cost of goods sold 393,000

Gross profit $261,000

Selling and administrative expense 100,000

Operating income $161,000

Interest expense 50,000

Income before tax $111,000

Income tax expense (40%) 44,400

Net income $66,600

Accounts payable $45,000

Accrued liabilities 70,000

Income taxes payable 10,000

Interest payable 25,000

Short-term loans payable 150,000

Total current liabilities $300,000

Long-term bonds payable $500,000

Preferred stock, 10%, $100 par $250,000

Common stock, no par 600,000

Retained earnings 350,000

Total stockholders' equity $1,200,000

Total liabilities and stockholders' equity $2,000,000

Required:

1. Compute the following ratios for Redwood Enterprises:

Return on sales

Asset turnover (Assume that total assets at the beginning of the year were $1,600,000.)

Return on assets

Return on common stockholders' equity (Assume that the only changes in stockholders' equity during the year were from the net income for the year and dividends on the preferred stock.)

When computing percentage amounts, carry out calculations to four decimal places, but enter your answers to two decimal places; for example, .17856 rounds to .1786 and would be entered as 17.86.

a. Return on sales: ___%

b. Asset turnover (round to 2 decimal places): 0.36 times

c. Return on assets: ___%

d. Return on common stockholders' equity: ___%