5. Profitability ratiosProfitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on theoperating performance of a firm.Your boss has asked you to calculate the profitability ratios of Diusitech Inc. and make comments on its second-year performance as compared with itsfirst-year performance.The following shows Diusitech Inc.'s income statement for the last two years. The company had assets of $4,700 million in the first year and $7,518million in the second year. Common equity was equal to $2,500 million in the first year, and the company distributed 100% of its earnings out asdividends during the first and the second years. In addition, the firm did not issue new stock during either year.Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars)Year 2 Year 12,5402,0001,6101,495127801,73780380723181542Net SalesOperating costs except depreciation and amortizationDepreciation and amortizationTotal Operating CostsOperating Income (or EBIT)Less: InterestEarnings before taxes (EBT)Less: Taxes (25%)Net Income1,5754254538095285 Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.RatioOperating marginProfit marginReturn on total assetsReturn on common equityBasic earning powerValueYear 20021.34%10.68%Year 121.25%6.06%11.40%Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights intoboth the survivability of a company and the benefits that shareholders receive. Identify which of the following statements are true about profitabilityratios. Check all that apply.A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both.If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.An increase in the return on assets ratio implies an increase in the assets a firm owns.If a company issues new common shares but its net income does not increase, return on common equity will increase.

The operating margin is an important measure of overall profitability from operations. It is the…

5. Profitability ratios Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Diusitech Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Diusitech Inc.'s income statement for the last two years. The company had assets of $4,700 million in the first year and $7,518 million in the second year. Common equity was equal to $2,500 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 2,540 2,000 1,610 1,495 127 80 1,737 803 80 723 181 542 Net Sales Operating costs except depreciation and amortization Depreciation and amortization Total Operating Costs Operating Income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (25%) Net Income 1,575 425 45 380 95 285

5. Profitability ratios Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Diusitech Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Diusitech Inc.'s income statement for the last two years. The company had assets of $4,700 million in the first year and $7,518 million in the second year. Common equity was equal to $2,500 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 2,540 2,000 1,610 1,495 127 80 1,737 803 80 723 181 542 Net Sales Operating costs except depreciation and amortization Depreciation and amortization Total Operating Costs Operating Income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (25%) Net Income 1,575 425 45 380 95 285

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 10P

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Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Diusitech Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Diusitech Inc.’s income statement for the last two years. The company had assets of $10,575 million in the first year and $16,916 million in the second year. Common equity was equal to $5,625 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 5,715 4,500 Operating costs except depreciation and amortization 1,365 1,268 Depreciation and…
Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Diusitech Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Diusitech Inc.'s income statement for the last two years. The company had assets of $8,225 million in the first year and $13,157 million in the second year. Common equity was equal to $4,375 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 4,445 1,120 222 1,342 3,103 310 2,793 698 2,095 Net Sales Operating costs except depreciation and amortization Depreciation and…
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