Reference no: EM132251460

Problem - Selected Financial data from the September 30 year-end statements of Green Company are given below:

Interest expense - 90,000

Profit - 470,000

Total assets - 5,000,000

12% interest long-term debt - 750,000

7% Preference shares, P100 par - 800,000

Total Shareholder's equity - 3,100,000

The company's tax rate is 30%. Total assets at the beginning of the year was P4,800,000 and total shareholder's equity was P2,900,000. There has been no change on the preference shares during the year.

This is the only interest bearing liability Green Company has.

Required:

1. Compute the return on average total assets.

2. Compute the return on average ordinary shareholder's equity

3. Is the company's financial leverage positive or negative? Explain.