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Megan has been asked to calculate the profitability ratios of Cold Goose Metal Works, Inc. and make comments on its second-year performance as compared to
Megan has been asked to calculate the profitability ratios of Cold Goose Metal Works, Inc. and make comments on its second-year performance as compared to its first-year performance. The following shows Cold Goose's income statement for the last two years. The company had assets of $10,575,000 in the first year and $16,916,400 in the second year. Common equity was equal to $5,625,000 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. Cold Goose Metal Works, Inc. Income Statements Years Ending December 31 Year Net Sales Operating costs less depreciation and amortization Depreciation and amortization Total Operating Costs Operating Income Interest Earnings before taxes Taxes (40%) Net Income Year 2 Year 1 $5,715,000 $4,500,000 1,365,000 1,267,500 285,750 180,000 $1,650,750 $1,447,500 $4,064,250 $3,052,500 406,425 320,513 $3,657,825 $2,731,987 1,463,130 1,092,795 $2,194,695 $1,639,192 Given the income statements, calculate the profitability ratios of Cold Goose Metal Works, Inc. Profitability Ratio Value Year 2 Year 1 67.83% Operating profit margin Net profit margin 38.40% Return on total assets 15.50% Return on common equity 29.14% 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. 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 net 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 00
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