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 ratlos of St. McStonky Beer Co, and make comments on its second-year performance as compared with its first year performance The following shows St.Mestanky Beer Co. income statement for the last two years. The company had assets of $3,525 million in the first year and 55,639 million in the second year. Common equity was equal to $1,875 million in the first year, and the company distributed 100% or its earnings out as dividends during the first and the second years. In addition, the firm dia not issue new stock during either year. St. McStanky Beer Co. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sa 1.905 13500 Operating costscript depreciation and amortization 1,855 1.723 Depreciabon and mortation 05 00 Total Operating costs 1.950 1,78 Operating Income (or EBIT) -15 95 60 1,950 45 1,783 283 Depreciation and amortization Total Operating costs Operating Income (or EBIT) Less Interest Earnings before taxes (EBT) Less: Taxes (40%) Net Income 6 -23 A -260 -10 -104 -156 Calcunate the profitability ratios of St. Mestenky Beer Co. in the following table. Convert al calculations to a percentage rounded to two decimal 1 place Ratio Value Vear 2 Year 1 18:17 Operating margin Promargir Return on common equity Basic power 10.10 > Decision makers and analysts look deeply into prontabuty rabios to identify trends in a company's profitability Profitability ratio give insights into both the survival of a company and the benefits that shamolders receive. Identity which of the following statements are true about profitability rabiesCheck all that apply IT a company has a profit margin of 10% it means that the company came a net income of $10 for each dollar ose of a company's operating margin increases but ita protit margin decrates, it could mean that the company paid more in interest or taxes Aires in the turn on ratio imples an increase in the atmows. como se common but it net income costruturn on common equity will incre