Attempts: Average: 9 6. 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 Triptych Food Corp. and make comments on its second-year performance as compared to its first-year performance. The following shows Triptych Food Corp.'s income statement for the last two years. The company had assets of $7,050 million in the first year and $11,278 million in the second year. Common equity was equal to $3,750 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. Triptych Food Corp. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 3,810 1,610 191 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 (40%) Net Income Year 1 3,000 1,495 120 1,615 1,385 145 1,240 1,801 2,009 201 1,808 723 496 1,085 Assignment 03 - Analysis of Financial Statements Less: Taxes (40%) Net Income 723 1,085 496 744 Calculate the profitability ratios of Triptych Food Corp. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value 2 28.48% 4 6.17% Operating profit margin Net profit margin Return on total assets Return on common equity Basic earning power 10.55% 19.84% 17.81% 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 net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. An increase in a company's earnings means that the net profit margin is increasing If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. If a company issues new common shares but its net income does not increase, return on common equity will increase