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.
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.
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 10P
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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.
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.
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