Question - 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.