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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

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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 SixtySecond Avenue Inc. and make comments on its secondyear performance as compared to its first-year performance. The following shows Sixty-Second Avenue Inc.'s income statement for the last two years. The company had assets of $11,750 million in the first year and $18,796 million in the second year. Common equity was equal to $6,250 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) Year 2 Year 1 Net Sales 6,350 5,000 Operating costs except depreciation and amortization 1,120 1,040 Depreciation and amortization 318 200 Total Operating Costs 1,438 1,240 Operating Income (or EBIT) 4,912 3,760 Less: Interest 491 395 Earnings before taxes (EBT) 4,421 3,365 Less: Taxes (40%) 1,768 1,346 Net Income 2,653 2,019 Calculate the profitability ratios of SixtySecond Avenue Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 Operating margin |:| 75.20% Profit margin 41.78% |:| Return on total assets |:| 17.18% Return on common equity 32.30% Basic earning power 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. D D D A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both. An increase in the return on assets ratio implies an increase in the assets a firm owns. 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

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