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 1,180 3,103 2,320 310 244 2,793 2,076 698 519 2,095 1,557 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 3,500 1,040 140 Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.
Ratio
Operating margin
Profit margin
Return on total assets
Return on common equity
Basic earning power
Value
Year 2
47.13%
23.58%
Year 1
66.29%
18.93%
35.59%
Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights into
both the survivability of a company and the benefits that shareholders receive. Identify which of the following statements are true about profitability
ratios. Check all that apply.
If a company has a 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 a company's earnings means that the profit margin is increasing.
If a company issues new common shares but its net income does not increase, return on common equity will increase.
Transcribed Image Text:Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Operating margin Profit margin Return on total assets Return on common equity Basic earning power Value Year 2 47.13% 23.58% Year 1 66.29% 18.93% 35.59% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights into both the survivability of a company and the benefits that shareholders receive. Identify which of the following statements are true about profitability ratios. Check all that apply. If a company has a 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 a company's earnings means that the profit margin is increasing. If a company issues new common shares but its net income does not increase, return on common equity will increase.
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 amortization
Total Operating Costs
Operating Income (or EBIT)
Less: Interest
Earnings before taxes (EBT)
Less: Taxes (25%)
Net Income
3,500
1,040
140
1,180
2,320
244
2,076
519
1,557
Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.
Transcribed Image Text: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 amortization Total Operating Costs Operating Income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (25%) Net Income 3,500 1,040 140 1,180 2,320 244 2,076 519 1,557 Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Ratio Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education