Profitability ratios, trading on the equity.
Digital Relay has both preferred and common stock outstanding. The com pany 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 |
a. Compute the profit margin on sales and the rates of return on assets and common stockholders’ equity, rounding calculations to two decimal places.
b. Does the firm have positive or negative financial leverage? Briefly explain.