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 $3,525 million in the first year and $5,639 million in the second year. Common equity was equal to $1,875 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 1,905 1,500 Operating costs except depreciation and amortization 1,610 1,495 Depreciation and amortization 95 60 Total Operating Costs 1,555 1,705 Operating Income (or IT) 200 55 Less: Interest 20 7 Earnings before taxes (EBT) 180 -48 Less: Taxes (25%) 45 -12 Net Income 135 -36 Calculate the profitability ratios of Petroxy Oil Co. in the following table. Convert all calcu lations to a percentage rounded to two decimal places Value Ratio Year 2 Year 1 Operating margin Profit margin -3.67% 7.09% Return on total assets -1.02% Return on common equity -1.92% Basic earning power 3.55% 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. 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 Grade It Now Save & Continue Continue without saving Value Ratio Year 2 Year 1 Operating margin -3.67% Profit margin 13.33% Return on total assets -1.02% Return on common equity -1.92% -2.89% Basic earning power 12.60% Decision makers and analysts l 10.50% into profitability ratios to ide both the survivability of a company anu ue benefits that shareholders ratios. Check all that apply Value Ratio Year 2 Year 1 Operating margin -3.67% Profit margin 7.09% Return on total assets -1.02% Return on common equity -1.92% 0.64% Basic earning power 2.75% into profitability ratios to identify trends Decision makers and analysts lo 3.83% both the survivability of a comp e benefits that shareholders receive. Ide ratios. Check all that apply. 2.39% If a company has a profit margin of 10%, it means that the company ear If a company's operating margin increases but its profit margin decrease taxes Value Ratio Year 2 Year 1 Operating margin -3.67% Profit margin 7.09% Return on total assets -1.02% Return on common equity -1.92% Basic earning power 7.20% Decision makers and analysts l 6,41%into profitability ratios to identify trends in both the survivability of a comp he benefits that shareholders receive. Ident 5.40% ratios. Check all that apply. 8.86% If a company has a pl in of 10%, it means that the company earn If a company's operating margin increases but its profit margin decreases taxes An increase in a company's earnings means that the profit margin is incre Calculate the profitability ratios of Petroxy Oil Co. in the following table. Conver Value Ratio Year 2 Year 1 Operating margin -3.67% Profit margin 7.09% Return on total assets -3.24% Return on common equity Basic earning power 3.55% -2.40% -1.89% Decision makers and analysts look deeply into pro tios to identify tre both the survivability of a company and the benefi 9.00% reholders receive ratios. Check all that apply. If a company has a profit margin of 10%, it means that the company Calculate the profitability ratios of Petroxy Oil Co. in the following table. C Value Ratio Year 2 Year 1 Operating margin -3.67% Profit margin 7.09% Return on total assets -1.02% Return on common equity -1.92% Basic earning power 3.55% -1.17% Decision makers and analysts look deeply into pro tios to identif both the survivability of a company and the benefi reholders rec 5.67% ratios. Check all that apply -1.56% If a company has a profit margin of 10 s that the com -0.98% If a company's operating margin increases but its profit margin taxes