Return Ratios and Leverage The following selected data are taken from the financial statements of Redwood Enterprises: Sales revenue $643,000 Cost of goods sold 382,000 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 600,000 350,000 Retained earnings Total stockholders' equity $1,200,000 $2,000,000 Total liabilities and stockholders' equity Required: 1. Compute the following ratios for Redwood Enterprises: a. Return on sales b. Asset turnover (Assume that total assets at the beginning of the year were $1,600,000.) C. Return on assets d. Return on common stockholders' equity (Assume that the only changes in stockholders' equity LE Required: 1. Compute the following ratios for Redwood Enterprises: a. Return on sales b. Asset turnover (Assume that total assets at the beginning of the year were $1,600,000.) C. Return on assets d. 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 a. Return on sales 15.02 V % b. Asset turnover (round to 2 decimal places) 4.02 X times C. Return on assets 0.603 X % d. Return on common stockholders' equity % 2. Comment on Evergreen's use of leverage. Has it successfully employed leverage? Yes, Evergreen has successfully employed leverage because; amount of stockholders funds is less than the amount of outside funds. X Feedback Check My Work Leverage is the extent that a company uses debt and amounts received from preferred stockholders to generate a higher return (as indicated by the return on common stockholders' equity