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

Sales revenue $ 650,000 Cost of goods sold 400,000 Gross profi t $ 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.AppendixLO1