The relationship between financial leverage and profitability Pelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financial statement values for each company follow analysis that compares the firms'financial leverage and profitability a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other. (1) Debt ratio (2) Times interest earned ratio b. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to each other (1) Operating profit margin (2) Net profit margin (3) Return on total assets (4) Return on common equity c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland's investors undertake when they choose to purchase its stock instead of Pelican's? Use them in a ratio a. The debt ratio for Pelican is 6.2%. (Round to one decimal place.) The debt ratio for Timberland is Lps. (Round to one decimal place.) Item Pelican Paper, Inc $9,700,000 9,100,000 600,000 Timberland Forest, Inc Total assets $9,700,000 4,900,000 4,800,000 480,000 27,000,000 6,750,000 Total equity (all common) Total debt Annual interest 60,000 Total sales 27,000,000 6,750,000 EBIT Earnings available for 3,985,200 3,726,000 common stockholders