The following information was drawn from the Year 5 balance sheets of two companies:

During Year 5, Steelman’s net income was $45,800, while Bingum’s net income was $22,300.

Required
a. Compute the debt-to-assets ratio to measure the level of financial risk of both companies.
b. Compare the two ratios computed in Requirement a to identify which company has the higher level of financial risk.
c. Compute the return-on-equity ratio to measure the level of financial risk of both companies.
d. Compare the two ratios computed in Requirement a to identify which company is performing better.
e. Define the term financial leverage.
f. Identify the company that is using financial leverage to a greater extent.

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Common Stock Retalned Earnings Company Llabllitles Assets 200,000 Steelman Bingum 400,000 125,000 120,000 145,000 720,000 180,000