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CENGAGE MINDTAP Ch 03: Assignment - Analysis of Financial Statements Your boss has asked you to calculate the profitability ratios of Dernham Inc. and make
CENGAGE MINDTAP Ch 03: Assignment - Analysis of Financial Statements 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 $5,875 million in the first year and $9,398 million in the second year. Common equity was equal to $3,125 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. 159 100 Dernham Inc. Income Statement for the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 3,175 2,500 Operating costs except depreciation and amortization 1,610 1,495 Depreciation and amortization Total Operating costs 1,595 Operating Income (or EBIT) Less: Interest 95 Earnings before taxes (EBT) 1,265 810 Less: Taxes (40%) Net Income 1,769 1,406 905 141 506 324 759 486 Calculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Value Year 2 Year 1 36.20% 23.91% Ratio Operating margin Net profit margin Return on total assets Return on common equity Basic earning power 8.27% 15.55% 14.96%
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