Problem #9Ratios to Evaluate the Use of LeverageYou have been asked to evaluate Ballada Hardware and Del Mundo Building Supply todetermine which one is doing the better job of using leverage to increase the return toordinary shareholders. The data for the two firms are presented below.Ballada HardwareDel Mundo Building SupplyTotal Assets:Total Assets:Jan. 1P1,340,000Jan. 1P250,000Dec. 311,500,000Dec. 31280,000Total Equity:Total Equity:Jan. 1650,000830,00064,000Jan. 1150,000Dec. 31Dec. 31175,000Interest ExpenseInterest Expense10,000Profit156,000Profit37,500Required:1. Calculate the return on total assets and the return on ordinary equity for both firms.2. In your opinion, which firm is making the better use of leverage to increase thereturn to ordinary shareholders?

Solution: BALLADA HARDWARE Return on assets: ROA= (Net Income/ Average Assets)x 100 Net income =…

Ratios to Evaluate the Use of Leverage You have been asked to evaluate Ballada Hardware and Del Mundo Buildi determine which one is doing the better job of using leverage to increase ordinary shareholders. The data for the two firms are presented below. Ballada Hardware Del Mundo Building Su Total Assets: Total Assets: Jan. 1 Jan. 1 P1,340,000 1,500,000 Dec. 31 Dec. 31 Total Equity: Total Equity: Jan. 1 650,000 Jan. 1 Dec. 31 830,000 Dec. 31 Interest Expense 64,000 Interest Expense Profit 156,000 Profit Required: 1. Calculate the return on total assets and the return on ordinary equity fa 2. In your opinion, which firm is making the better use of leverage to return to ordinary shareholders?

Ratios to Evaluate the Use of Leverage You have been asked to evaluate Ballada Hardware and Del Mundo Buildi determine which one is doing the better job of using leverage to increase ordinary shareholders. The data for the two firms are presented below. Ballada Hardware Del Mundo Building Su Total Assets: Total Assets: Jan. 1 Jan. 1 P1,340,000 1,500,000 Dec. 31 Dec. 31 Total Equity: Total Equity: Jan. 1 650,000 Jan. 1 Dec. 31 830,000 Dec. 31 Interest Expense 64,000 Interest Expense Profit 156,000 Profit Required: 1. Calculate the return on total assets and the return on ordinary equity fa 2. In your opinion, which firm is making the better use of leverage to return to ordinary shareholders?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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