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 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 $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, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new stock in the second year Dernham Inc Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Yar 1 4,000 1,040 160 1,200 06 2,800 224 2,576 1,030 1,546 5,080 1,120 Net Sales Operating costs except depreciation and amortization 254 1,374 3,7 Depreciation and amortization Total Operating Costs Operating Income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net Income 500 3,206 1,282 1,924