Why is there a positive leverage from use of debt? How can we tell that? Dec. 31, Year 3Dec. 31, Year 2Dec. 31, Year 1Total assets$3,000,000$2,700,000$2,400,000Notes payable (10% interest)1,000,0001,000,0001,000,000Common stock400,000400,000400,000Preferred $6 stock, $100 par200,000200,000200,000Retained earnings1,126,000896,000600,000The Year 3 net income was $242,000 and the Year 2 net income was $308,000. No dividends on common stock weredeclared during the 3 years.a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equityfor Years 2 and 3. If required, round your answers to one decimal place.Year 3Year 2Return on Total Assets12%16%Return on Stockholders' Equity15%22.8%Return on Common Stockholders' Equity16.3%25.8%b. What conclusion can be drawn from these data as to the company's profitability?The profitability ratios indicate that The Winter Group's profitability has deteriorated vMost of this change is from netincome falling vin Year 3. There is negative Xleverage from use of debt.

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Description: Why is there a positive leverage from use of debt? How can we tell that? Dec. 31, Year 3Dec. 31, Year 2Dec. 31, Year 1Total assets$3,000,000$2,700,000$2,400,000Notes payable (10% interest)1,000,0001,000,0001,000,000Common stock400,000400,000400,000Pr

Positive leverage: Leverage is the concept of investment by using the borrowed funds. Positive…

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Business

Accounting

Why is there a positive leverage from use of debt? How can we tell that?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 17E

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Category Prior Year Current Year Accounts payable 3,159.00 5,955.00 Accounts receivable 6,974.00 8,952.00 Accruals 5,771.00 6,100.00 Additional paid in capital 19,965.00 13,214.00 Cash ??? ??? Common Stock 2,850 2,850 COGS 22,509.00 18,563.00 Current portion long-term debt 500 500 Depreciation expense 1,044.00 984.00 Interest expense 1,285.00 1,168.00 Inventories 3,015.00 6,719.00 Long-term debt 16,894.00 22,766.00 Net fixed assets 75,882.00 73,989.00 Notes payable 4,022.00 6,500.00 Operating expenses (excl. depr.) 19,950 20,000 Retained earnings 35,811.00 34,391.00 Sales 46,360 45,993.00 Taxes 350 920 What is the firm's cash flow from operations? Submit Answer format: Number: Round to: 0 decimal places. unanswered not_submitted Attempts Remaining: Infinity
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US Kimmel Financial AccountingI, Se Hele I Sestem Announcoments Problem 11-2A (Part Level Submission) The stockholders' equity accounts of Ayayai Corp. on January 1, 2017, were as follows. Preferred Stock (7%, $100 par noncumulative, 5,000 shares authorized) Common Stock ($4 stated value, 300,000 shares authorized) Paid-in Capital in Excess of Par Value-Preferred Stock Paid-in Capital in Excess of Stated Value-Common Stock $300,000 1,000,000 15,000 480,000 Retained Earnings 691,500 Treasury Stock (5,000 common shares) 40,000 During 2017, the corporation had the following transactions and events pertaining to its stockholders' equity. Issued 5,000 shares of common stock for $35,000. Purchased 1,000 additional shares of common treasury stock at $8 per share. Declared a 7% cash dividend on preferred stock, payable November 1. Feb. 1 Mar. 20 Oct. 1 Nov. 1 Paid the dividend declared on October 1. Dec. 1 Declared a $0.55 per share cash dividend to common stockholders of record on December…
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BALANCE SHEETCash $ 140.0 Accounts payable $ 800 .0Accts. receivable 880 .0 Notes payable 600.0Inventories 1,320.0 Accruals 400 .0Total current assets $2,340.0 Total current liabilities $1,800.0Long-term bonds 1,000.0Total debt $2,800.0Common stock 200 .0Retained earnings 1,000.0Net plant & equip. 1,660.0 Total common equity $1,200.0Total assets $4.000.0 Total liabilities & equity $4.000.0lNCOME STATEMENTNet sales $6,000.0Operating costs 5,599.8Depreciation 100.2EBIT $ 300.0Less: Interest 96 .0EBT $ 204 .0Less: Taxes 81.6Net income $ 122.4OTHER DATAAnnual Principal and Lease Payments 0.00Shares outstanding (millions) 60 .00Common dividends (millions) $42.8Interest rate on NIP and long-term bonds 6.0 %Federal plus state income tax rate 40%Year-end stock price $30 .60 Question 9 What is the firm's Debt Ratio? Group of answer choices 60.0% 65.0% 70.0% 75.0% Question 10 What is the firm's Inventory Turnover? 4.41 4.55 4.69 4.83 Question 11 What is the firm's DPS…
BALANCE SHEETCash $ 140.0 Accounts payable $ 800 .0Accts. receivable 880 .0 Notes payable 600.0Inventories 1,320.0 Accruals 400 .0Total current assets $2,340.0 Total current liabilities $1,800.0Long-term bonds 1,000.0Total debt $2,800.0Common stock 200 .0Retained earnings 1,000.0Net plant & equip. 1,660.0 Total common equity $1,200.0Total assets $4.000.0 Total liabilities & equity $4.000.0lNCOME STATEMENTNet sales $6,000.0Operating costs 5,599.8Depreciation 100.2EBIT $ 300.0Less: Interest 96 .0EBT $ 204 .0Less: Taxes 81.6Net income $ 122.4OTHER DATAAnnual Principal and Lease Payments 0.00Shares outstanding (millions) 60 .00Common dividends (millions) $42.8Interest rate on NIP and long-term bonds 6.0 %Federal plus state income tax rate 40%Year-end stock price $30 .60 Question 5 What is the firm's EBITDA coverage? Group of answer choices 3.51 3.69 3.88 4.17 Question 6 What is the firms DSO (Days Sales Outstanding)? Group of answer choices 51.30 days 52.80 days 53.50…
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