The following selected data are taken from the financial statements of Evergreen Company:
Sales revenue .............. $ 650,000
Cost of goods sold ............ 400,000
Gross profit .............. $ 250,000
Selling and administrative expense ..... 100,000
Operating income ............ $ 150,000
Interest expense .............. 50,000
Income before tax ............. $ 100,000
Income tax expense (40%) ........ 40,000
Net income .............. $ 60,000
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 Evergreen Company:
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.)
2. Comment on Evergreen’s use of leverage. Has it successfully employed leverage? Explain.