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

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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(Analyzing the quality of firm earnings) Kabutell, Inc. had net income of $750,000, cash flow from financing activities of $50,000, depreciation expenses of $40,000, and cash flow from operating activities of $550,000. a. Calculate the quality of earnings ratio. What does this ratio tell you? b. Kabutell, Inc. reported the following in its annual reports for 2011-2013: ($ million) 2011 2012 2013 Cash Flow from Operations $479 $405 Capital Expenditures (CAPEX) $461 $447 $469 $457 (Click on the icon in order to copy its contents into a spreadsheet.) Calculate the average capital acquisitions ratio over the three-year period. How would you interpret these results? a. What is Kabutell's quality of earnings ratio? % (Round to one decimal place.)
Directions: Read each sentence carefully and detemine whether the statement is TRUE or FALSE. Write your answers onthe space provided before each number. 1. Profitability ratios measure the ability of the company's assets and invested capital to generate sales. 2. Čunent ratio is generally higher than quick ratio. 3. Using anothercompany as benchmark, the company with highernet profitmarginis more profitable. 4. Accounts receivable turnover measures the number of days in the company's average collections period. 5. Firancial statement analysis uses computational and analytical techniques to evaluate the company's risks, performance, financial health, and future prospects with the objective of making economic decisions. - 6. Given equal gross profit margin, the company with the better operating income margin has higher operating expenses as a percentage of sales. 7. Debt to equity ratio measures the percentage of assets financed by equity. 8. Gross profit margin provide an indication of…
Business ratio analysis of financial statements over several years is generally helpful for the following reasons, EXCEPT Seleccione una: a. helps to evaluate management performance b. helps to forecast next year stock price level c. helps to evaluate the overall situation of the business d. helps to detect problem areas e. helps to set realistic future objectives price level
1. Calculate the following values for the company for the year ending in 20x9. Present evidence of all your calculations.a. NOPAT - Net Operating Profit after Taxesb. OCF - Operating Cash Flowc. FCF - Free Cash Flow2. Discuss what meaning each of the measures calculated in the previous question has, both for management and for investors and creditors, among other constituents.3. What is the main cause of the differences that exist between the company's earnings and the cash flows of the same evaluated period?
Financial Accounting CMulford: Financial Statement Analysis: 13 Using Return on Assets and Return on Equity to Compare Performance Across Companies Thiokol Corp. and Wyman-Gordon, Inc. In a recent fiscal year, Thiokol Corp. reported sales of $889.5 million and net income of $51.4 million. For the same year, Wyman-Gordon, reported sales of $499.6 million and net income of $25.2 million, about half the income of Thiokol. Both companies are in the same industry, aerospace and defense. Use the data provided below to compare financial performance for the two companies (amounts in millions). Thiokol $ 889.5 $ 51.4 $ 818.3 $ 447.9 Wyman-Gordon $ 499.6 $ 25.2 $ 375.9 $ 109.9 Sales Net income Total assets Shareholders' equity Calculate: Return on assets Return on equity Why is Return on equity so different for the two companies?
6. Market value ratios Ratios are mostly calculated using data drawn from the financial statements of a firm. However, another group of ratios, called market value ratios, relate to a firm's observable market value, stock prices, and book values, integrating information from both the market and the firm's financial statements. Consider the case of Cute Camel Woodcraft Company: Cute Camel Woodcraft Company just reported earnings after tax (also called net income) of $9,750,000 and a current stock price of $28.50 per share. The company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to issue 2,900,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,400,000). If Cute Camel's forecast turns out to be correct and its price/earnings (P/E) ratio does not change, what does the company's management expect its stock price to be one year from now? (Round any P/E ratio calculation to four decimal places.) O $23.35 per…
Which of the following statements are true about profitability ratios? Check all that apply. If a company has a net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. 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.
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 Petroxy Oil Co. and make comments on its second-year performance as compared with its first-year performance. The following shows Petroxy Oil Co.'s income statement for the last two years. The company had assets of $9,400 million in the first year and $15,037 million in the second year. Common equity was equal to $5,000 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. Petroxy Oil Co. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 5,080 4,000 1,855 1,723 254 160 Net Sales Operating costs except depreciation and amortization Depreciation…
Perform a liquidity and profitability analysis on your company utilizing the ratios listed below. Quick Ratio, Receivable Turnover, Days sales uncollected, inventory turnover, Days inventory on hand, payable turnover, days payable, asset turnover, return on assets, and return on equity. statement of operations 12 Months Ended Jul. 31, 2020 Jul. 31, 2019 Revenues: Revenues $ 1,497,826,000 $ 1,684,392,000 Costs and expenses: Operating expense - personnel, vehicle, plant and other 493,055,000 468,868,000 Operating expense - equipment lease expense 33,017,000 Equipment lease expense, preadoption 33,073,000 Depreciation and amortization expense 80,481,000 78,846,000 General and administrative expense 45,752,000 59,994,000 Non-cash employee stock ownership plan compensation charge 2,871,000 5,693,000 Asset impairments 0 0 Loss on asset sales and disposals 7,924,000 10,968,000 Operating income 148,670,000 113,028,000 Interest expense…
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 Petroxy Oil Co. and make comments on its second-year performance as compared with its first-year performance. The following shows Petroxy Oil Co.’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. Petroxy Oil Co. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 2,540 2,000 Operating costs except depreciation and amortization 1,610 1,495 Depreciation and…

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