MA-17: Measures of Performance and Financial Leverage

Following are selected data from year-end financial statements of Lima Corporation for 2017 and

2016.

2017 2016

Total assets.........................................$4,420,000 $3,930,000

Interest expense.....................................69,000 61,000

Long-term liabilities...............................832,000 845,000

Net income.........................................452,875 411,900

Sales.................................................5,218,750 4,454,700

Stockholders' equity...........................2,428,750 2,100,000

Required:

a.Compute the following performance measurement ratios for 2017. (Ignore income taxes.)

1.Asset turnover

2.Return on sales

3.Return on assets

4.Return on equity

b.Is Lima Company using financial leverage? If so, is the leverage favorable or unfavorable?

Explain.