Return Ratios and Leverage The following selected data are taken from the financial statements of Pine Corp.: Sales revenue $654,000 388,000 Cost of goods sold Gross profit $266,000 100,000 Selling and administrative expense Operating income $166,000 50,000 Interest expense Income before tax $116,000 46,400 Income tax expense (40%) Net income $69,600 Accounts payable Accrued liabilities Income taxes payable Interest payable Short-term loans payable $45,000 70,000 10,000 25,000 150,000 Total current liabilities $300,000 Long-term bonds payable $500,000 Preferred stock, 10%, $100 par Common stock, no par Retained earnings $250,000 600,000 350,000 Total stockholders' equity $1,200,000 Total liabilities and stockholders' equity $2,000,000 Required: 1. Compute the following ratios for Pine Corp.: a. Return on sales Required: 1. Compute the following ratios for Pine Corp.: 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.) When computing percentage amounts, carry out calculations to four decimal places, but enter your answers to two decimal places; for example, .17856 rounds to .1786 and would be entered as 17.86. a. Return on sales 25.40 X % b. Asset turnover (round to 2 decimal places) 0.36 times c. Return on assets 3.5 X % d. Return on common stockholders' equity 4.7 X % 2. Comment on Evergreen's use of leverage. Has it successfully employed leverage? No, Evergreen has not successfully employed leverage because; the return on the stockholders funds is less than the return to all the providers of capital. Feedback Check My Work Leverage is the extent that a company uses debt and amounts received from preferred stockholders to generate a higher return (as indicated by the return on common stockholders' equity) than the return to all providers of capital (a