Exercise 15-11 Financial Ratios for Assessing Profitability and Managing Debt [LO15-4, LO15-5]

Selected financial data from the June 30 year-end statements of Safford Company are given below:

Total assets	$	5,800,000
Long-term debt (11% interest rate)	$	700,000
Total stockholders equity	$	2,900,000
Interest paid on long-term debt	$	77,000
Net income	$	460,000

Total assets at the beginning of the year were $5,600,000; total stockholders equity was $2,700,000. The companys tax rate is 35%.

Required:

1. Compute the return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

2. Compute the return on equity. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

3. Is financial leverage positive or negative?