1. Consider two companies, each with a return on assets of 10%. Company X has a return on equity of 15%, and Company Y has a return on equity of 20%. Which company uses more financial leverage? Explain.
2. Construct the common size balance sheet for Grisham Company for 2009.
| Balance Sheet (in millions) |
|
Cash
|
$50
|
Current liabilities
|
$30
|
|
Accounts receivable
|
30
|
Long-term debt
|
90
|
|
Inventory
|
80
|
Equity
|
240
|
|
Plant and equipment
|
200
|
|
|
|
Total assets
|
$360
|
Total liabilities and equity
|
$360
|