Profitability ratios, trading on the equity. Digital Relay has both preferred and common stock outstanding. The company reported the following information for 19X7:
|
Net sales
|
$1,500,000
|
|
Interest expense
|
120,000
|
|
Income tax expense
|
80,000
|
|
Preferred dividends
|
25,000
|
|
Net income
|
130,000
|
|
Average assets
|
1,100,000
|
|
Average common stockholders' equity
|
400,000
|
- Compute the gross profit margin ratio, the return on equity and the return on assets, rounding calculations to two decimal places.
- Does the firm have positive or negative financial leverage? Briefly explain.