5. Profitability ratios Aa Aa 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 Dernham Inc. and make comments on its second-year performance as compared to its first-year performance The following shows Dernham Inc. 's income statement for the last two years. The company had assets of $11,750 million in the first year and $18,796 million in the second year. Common equity was equal to $6,250 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 Dernham Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2Year 1 6,350 5,000 1,855 1,723 200 2,173 1,923 4.177 3,077 400 3,759 2,677 1,071 1,606 Net Sales Operating costs except depreciation and amortization 318 Depreciation and amortization Total Operating Costs Operating Income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net Income 418 1,504 2,255