Exercise 15-11 Financial Ratios for Assessing Profitability and Managing Debt

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

Total assets	$	3,600,000
Long-term debt (12% interest rate)		$500,000
Total stockholders equity	$	2,400,000
Interest paid on long-term debt		$60,000
Net income		$280,000

Total assets at the beginning of the year were $3,000,000; total stockholders equity was $2,200,000. The companys tax rate is 30%.

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?