Financial AccountingPelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financialstatement values for each company follow. Use them in a ratio analysis that compares the firms’ financialleverage and profitability.Item Pelican Paper, Inc. Timberland Forest, Inc.Total assets $10,000,000 $10,000,000Total equity (all common) 9,000,000 5,000,000Total debt 1,000,000 5,000,000Annual interest 100,000 500,000Total sales 25,000,000 25,000,000EBIT 6,250,000 6,250,000Earnings available forcommon stockholders 3,690,000 3,450,000Required:a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk andability to cover the costs in relation to each other.(1) Debt ratio(2) Times interest earned ratiob. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to eachOther.(1) Operating profit margin(2) Net profit margin(3) Return on total assets(4) Return on common equityc. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? Whatare the risks that Timberland’s investors undertake when they choose to purchase its stock instead ofPelican’s.?

Financial AccountingPelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financialstatement values for each company follow. Use them in a ratio analysis that compares the firms’ financialleverage and profitability.Item Pelican Paper, Inc. Timberland Forest, Inc.Total assets $10,000,000 $10,000,000Total equity (all common) 9,000,000 5,000,000Total debt 1,000,000 5,000,000Annual interest 100,000 500,000Total sales 25,000,000 25,000,000EBIT 6,250,000 6,250,000Earnings available forcommon stockholders 3,690,000 3,450,000Required:a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk andability to cover the costs in relation to each other.(1) Debt ratio(2) Times interest earned ratiob. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to eachOther.(1) Operating profit margin(2) Net profit margin(3) Return on total assets(4) Return on common equityc. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? Whatare the risks that Timberland’s investors undertake when they choose to purchase its stock instead ofPelican’s.?

Financial AccountingPelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financialstatement values for each company follow. Use them in a ratio analysis that compares the firms’ financialleverage and profitability.Item Pelican Paper, Inc. Timberland Forest, Inc.Total assets $10,000,000 $10,000,000Total equity (all common) 9,000,000 5,000,000Total debt 1,000,000 5,000,000Annual interest 100,000 500,000Total sales 25,000,000 25,000,000EBIT 6,250,000 6,250,000Earnings available forcommon stockholders 3,690,000 3,450,000Required:a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk andability to cover the costs in relation to each other.(1) Debt ratio(2) Times interest earned ratiob. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to eachOther.(1) Operating profit margin(2) Net profit margin(3) Return on total assets(4) Return on common equityc. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? Whatare the risks that Timberland’s investors undertake when they choose to purchase its stock instead ofPelican’s.?