Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance
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 Sixty-Second Avenue Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Sixty-Second Avenue Inc.'s Income statement for the last two years. The company had assets of $3,525 million in the first year and $5,639 million in the second year. Common equity was equal to $1,875 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. Sixty-Second Avenue Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Net Sales Year 2 Year 1 1,905 1,500 Operating costs except depreciation and amortization 1,610 1,495. Depreciation and amortization 95 60 Total Operating Costs 1,705 1,555 Operating Income (or EBIT) 200 -55 Less: Interest 20 -6 Earnings before taxes (EBT) 180 -49 Less: Taxes (25%) 45 -12 Net Income 135 -37 Calculate the profitability ratios of Sixty-Second Avenue Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started