A the relationship between financial leverage and

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a. relation to each other. The relationship between financial leverage and profitability. Pelican Paper Inc. an of craft papers. Some financial statement values for each company follow. Use them in the firms’ financial leverage and profitability. Calculate the following debt and coverage ratios for the two companies. Discuss th relation to each other. In what way has the larger debt of Timberland Forest made it more profitable than P investors undertake when they choose to purchase its stock instead of Pelican’s? Calculate the following debt and coverage ratios for the two companies. Discuss th relation to each other.
Pelican Paper Timberland Forest 1. Debt ratio 10.0% 50.0% 2. Times interest earned ratio 62.5 12.5 b. Calculate the following profitability ratios for the two companies. Discuss their pro
c. In what way has the larger debt of Timberland Forest made it more profitable than P investors undertake when they choose to purchase its stock instead of Pelican’s?
ofitability relative to one another. nd Timberland Forest Inc. are rivals in the manufacture n a ratio analysis that compares heir financial risk and ability to cover the costs in Pelican Paper? What are the risks that Timberland’s heir financial risk and ability to cover the costs in
ofitability relative to one another. Pelican Paper? What are the risks that Timberland’s ng has magnified the returns that shareholders are ng Timberland Forest over Pelican Paper.
Problem 3-24 Sales revenue $ 160,000 Less: Cost of goods sold 106,000 Gross profits $ 54,000 Less: Operating expenses Selling expense $ 16,000 General and administrative expenses 10,000 Lease expense 1,000 Depreciation expense 10,000 Total operating expense $ 37,000 Operating profits $ 17,000 Less: Interest expense 6,100 Net profits before taxes $ 10,900 Less: Taxes 4,360 Net profits after taxes $ 6,540 Zach Industries Balance Sheet December 31, 2019 Assets Cash $ 500 Marketable securities 1,000 Accounts receivable 25,000 Inventories 45,500 Total current assets $ 72,000 Land $ 26,000 Buildings and equipment 90,000 Less: Accumulated depreciation 38,000 Net fixed assets $ 78,000 Total assets $ 150,000 Financial statement analysis. The financial statements of Zach Industries for the Zach Industries Income Statement for the Year Ended December 31, 2019
Liabilities and Stockholders’ Equity Accounts payable $ 22,000 Notes payable 47,000 Total current liabilities $ 69,000 Long-term debt 22,950 31,500 Retained earnings 26,550 Total liabilities and stockholders’ equity $ 150,000 a.

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