Return Ratios and Leverage The following selected data are taken from the financial statements of Evergreen Company:

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.

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Sales revenue Cost of goods sold Gross profit Selling and administrative expense Operating income Interest expense $ 650,000 400,000 $ 250,000 100,000 $ 150,000 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 10,000 25,000 150,000 $ 300,000 Income taxes payable Interest payable Short-term loans payable Total current liabilities Long-term bonds payable Preferred stock, 10%, $100 par Common stock, no par Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 500,000 $ 250,000 600,000 350,000 $1,200,000 $2,000,000