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 Diusitech Inc and make comments on its second year performance as compared with its first year performance The following shows Diusitech Inc s income statement for the last two years The company had assets of $4,700 million in the first year and $7,518 million in the second year Common equity was equal to $2,500 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 Diusitech Inc Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 2,540 2,000 Operating costs except depreciation and amortization 1,855 1,723 Depreciation and amortization 127 80 Total Operating Costs 1,982 1,803 Operating Income (or EBIT) 558 197 Less Interest 56 16 Earnings before taxes (EBT) 502 181 Less Taxes (25 ) 126 45 Net Income 376 136 Calculate the profitability ratios of Diusitech Inc in the following table Convert all calculations to a percentage rounded to two decimal places Ratio Value Year 2 Year 1 Operating margin 9 85 Profit margin 14 80 Return on total assets 2 89 Return on common equity 5 44 Basic earning power 7 42 Decision makers and analysts look deeply into profitability ratios to identify trends in a companys 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 A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both If a companys operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes An increase in the return on assets ratio implies an increase in the assets a firm owns If a company issues new common shares but its net income does not increase, return on common equity will increase

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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

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 Diusitech Inc. and make comments on its second-year performance as compared with its first-year performance.

The following shows Diusitech Inc.s income statement for the last two years. The company had assets of $4,700 million in the first year and $7,518 million in the second year. Common equity was equal to $2,500 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.

Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars)

	Year 2	Year 1
Net Sales	2,540	2,000
Operating costs except depreciation and amortization	1,855	1,723
Depreciation and amortization	127	80
Total Operating Costs	1,982	1,803
Operating Income (or EBIT)	558	197
Less: Interest	56	16
Earnings before taxes (EBT)	502	181
Less: Taxes (25%)	126	45
Net Income	376	136

Calculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.

Ratio	Value
	Year 2	Year 1
Operating margin		9.85%
Profit margin	14.80%
Return on total assets		2.89%
Return on common equity		5.44%
Basic earning power	7.42%	Decision makers and analysts look deeply into profitability ratios to identify trends in a companys 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. A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both. If a companys operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in the return on assets ratio implies an increase in the assets a firm owns. If a company issues new common shares but its net income does not increase, return on common equity will increase.