The financial statements of Flathead Lake Manufacturing Company are shown below.

Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)
A) 1.5
B) 2
C) 2.5
D) 3

Question

The financial statements of Flathead Lake Manufacturing Company are shown below.

Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)
A) 1.5 
B) 2 
C) 2.5 
D) 3

Quizplus · Accepted Answer

Compound leverage ratio = (Pretax profit/EBIT) × (Assets/Equity) Assets/Equity = 11eaaae8_8b4b_16ad_a4b8_e9a892c9930b_TB6474_11 11eaaae8_8b4b_16ae_a4b8_41a4edf543f0_TB6474_11 = 2.51

The Financial Statements of Flathead Lake Manufacturing Company Are Shown