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 Gadget Twin Inc. and make comments on its second-year performance as compared to its first-year performance. The following shows Gadget Twin Inc.'s income statement for the last two years. The company had assets of $8,225 million in the first year and $13,157 million in the second year. Common equity was equal to $4,375 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. Gadget Twin Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 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 4,445 1,120 222 1,342 3,103 419 2,684 1,074 1,610 3,500 1,040 140 1,180 2,320 244 2,076 830 1,246 Calculate the profitability ratios of Gadget Twin Inc. in the following table. Convert all calentinne n Calculate the profitability ratios of Gadget Twin Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 66.29% 36.22% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 15.15% 28.48% L 23.58% 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. O A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both. An increase in a company's earnings means that the profit margin is 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 alysis of Financial Statements ratios of Gadget Twin Inc. in the following table. Convert all calculations to aces. Ratio Value Year 2 Year 1 65.29% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 69.81% 52.19% 88.66% 83.77% 25.58% 15.15% 28.48% alysts look deeply into profitability ratios to identify trends in a company's pro isights into both the survivability of a company and the benefits that sharehol owing statements are true about profitability ratios. Check all that apply. g margin than the industry average indicates either lower operating costs, hig! company's earnings means that the profit margin is increasing. perating margin increases but its profit margin decreases, it could mean that th rest or taxes. ues new common shares but its net income does not increase, return on comme My Uruersillegg.com My Orders Che DTAP Analysis of Financial Statements ity ratios of Gadget Twin Inc. in the following table. Convert all calculations to al places. Ratio Value Year 2 Year 1 66.29% 36.22% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 40.00% 48.06% 28.03% 35.60% 23.58% analysts look deeply into profitability ratios to identify trends in a company's prof we insights into both the survivability of a company and the benefits that sharehold following statements are true about profitability ratios. Check all that apply. ating margin than the industry average indicates either lower operating costs, high th. a company's earnings means that the profit margin is increasing. 's operating margin increases but its profit margin decreases, it could mean that the interest or taxes. issues new common shares but its net income does not increase, return on commor TAP nalysis of Financial Statements ratios of Gadget Twin Inc. in the following table. Convert all calculations places. Ratio Value Year 2 Year 1 66.29% 36.22% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 15.15% 28.48% 19.57% 9.47% 12.24% 14.08% nalysts look deeply into profitability ratios to identify trends in a company's p insights into both the survivability of a company and the benefits that shareh -llowing statements are true about profitability ratios. Check all that apply. ng margin than the industry average indicates either lower operating costs, hi company's earnings means that the profit margin is increasing. operating margin increases but its profit margin decreases, it could mean that Cerest or taxes. sues new common shares but its net income does not increase, return on comm nalysis of Financial Statements y ratios of Gadget Twin Inc. in the following table. Convert all calculati places. Ratio Value Year 2 Year 1 Operating margin 66.29% Profit margin 36.22% Return on total assets 15.15% Return on common equity 28.48% Basic earning power 27.6040 45.26% 36.80% 32.75% nalysts look deeply into profitability ratios to identify trends in a company's insights into both the survivability of a company and the benefits that share Hlowing statements are true about profitability ratios. Check all that apply. ng margin than the industry average indicates either lower operating costs, company's earnings means that the profit margin is increasing. operating margin increases but its profit margin decreases, it could mean that erest or taxes. sues new common shares but its net income does not increase, return on com TAP nalysis of Financial Statements ratios of Gadget Twin Inc. in the following table. Convert all calcula places. Value Ratio Year 2 Year 1 Operating margin 66.29% Profit margin 36.22% Return on total assets 15.15% Return on common equity 28.48% Basic earning power 23.58% 37.73% 17.63% 21.16% malysts look deeply into profitability ratios to identif insights into both the survivability of a company and the benefits that she 28.21% mpan allowing statements are true about profitability ratios. Check all that app ing margin than the industry average indicates either lower operating cos company's earnings means that the profit margin is increasing. operating margin increases but its profit margin decreases, it could mean Cerest or taxes. sues new common shares but its net income does not increase, return on