ACC 205 Week 5 Exercise 3 Profitability ratios, trading on the equity
- 1.Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 19X7:
| Net sales | $1,500,000 |
| Interest expense | 120,000 |
| Income tax expense | 80,000 |
| Preferred dividends | 25,000 |
| Net income | 130,000 |
| Average assets | 1,100,000 |
| Average common stockholders’ equity | 400,000 |
- Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
- Does the firm have positive or negative financial leverage? Briefly explain.
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