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The relationship between financial leverage and profitability Pelican Paper, Inc., and Timberland Forest, Inc. are rivals in the manufacture of craft paper. Some financia statement valuns for each company follow Use them in a ratio analysis that compares the firms financial leverage and profitability a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other, (1) Debt ratio (2) Times interest earned ratio b. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to each other (5) Opowing profit margin (2) Net profit margin (3) Return on total assets (4) Return on common equity c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Pacer? What are the risks that Timberland's investora undertake when they choose to purchase its stock instead of Pelican's a. The debato for Pelicans 1% (Round to one decimal place) (Click the icon here in order to copy the contents of the data table below into a spreadsheet.) take Item Total assets Total equity (all common) Total debt Annual interest Total sales EBIT Earings available for common stockholders Pelican Paper, Inc. $9,800,000 9,100,000 700,000 70,000 22,000,000 5,500,000 Timberland Forest, Inc. $9,800,000 4,500,000 5,300,000 530,000 22,000,000 5,500,000 3,247 200 3,036,000 Print Done

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