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 Dernham Inc. and make comments on its second-year performance as compared with its first-year performance. * B The following shows Derham 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. Dernham Inc. Income Statement for the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 2,540 2,000 1,855 1,723 127 80 1.982 1,803 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 (25%) Net Income 558 197 75 16 483 181 121 45 362 136 Calculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Calculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places Ratio Value Year 2 Year 1 9.85% 14.25% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 2.89% 5.44% 7.42% Decision makers and analysts took deeply into profitability ratios to identify trends in a company's profitability. Profitability ratlos give insights into both the survivability of a company and the benefits that shareholders receive. Identity 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 Of 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 the return on assets ratio imples 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 16 483 Earnings before taxes (EBT) Less: Taxes (25%) 181 121 45 Net Income 362 136 Calculate the profitability ratios of Dernham Inc. in the following table. Convert a Ratio Value Year 2 Year 1 9.85% 21.97% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 2.89% 26.36% 5.44% 27.90% 7.76% Decision makers and analysts Id into profitability ratios to identify trends both the survivability of a company and the benefits that shareholders receive. Ider ratios. Check all that apply. A higher operating margin than the industry average indicates either lower If a company's operating margin increases but its profit margin decreases, An increase in the return on assets ratio implies an increase in the assets a If a company issues new common shares but its net income does not increa 121 45 (25%) 362 136 icability ratios of Dernham Inc. in the following table. Convert all Value Year 2 Year 1 gin 9.85% 14.25% al assets 5.35% mmon equity power 7.42% 9.18% 6.80% ers and analysts look deeply into pro tios to identify trends i avability of a company and the benefi 18.10% reholders receive. Iden all that apply. migher operating margin than the industry average indicates either lower a company's operating margin increases but its profit margin decreases, 483 181 efore taxes (EBT) 121 45 Es (25%) 362 136 ofitability ratios of Dernham Inc. in the following table. Convert all Value Year 2 Year 1 argin 9.85% 14.25% otal assets 2.89% ommon equity 5.44% 4.82% ng power 7.70% kers and analysts Id into profitability ratios to identify trends in 5.54% vivability of a comp he benefits that shareholders receive. Identi k all that apply. 1.81% higher operating margin than the industry average indicates either lower Ef a company's operating margin increases but its profit margin decreases, it An increase in 483 181 121 45 Earnings before taxes (EBT) Less: Taxes (25%) Net Income 362 136 te the profitability ratios of Dernham Inc. in the following table. Conver Ratio Value Year 2 Year 1 9.85% 14.25% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 2.89% 5.44% 12.89% Decision makers and analysts Id 14.48% into profitability ratios to identify trer both the survivability of a comp e benefits that shareholders receive. 10.86% ratios. Check all that apply. 17.81% A higher operating margir von the industry average indicates either I- If a company's operating margin increases but its profit margin decrea An increase in the return on assets ratio implies an increase in the asse If a company issues new common shares but its net income does not in alculate the profitability ratios of Dernham Inc. in the following table. Co Ratio Value Year 2 Year 1 Operating margin 9.85% Profit margin 14.25% Return on total assets 2.89% Return on common equity 5.44% Basic earning power 7.42% 3.14% Decision makers and analysts look deeply into pro tios to identify both the survivability of a company and the benefi 2.62% reholders receiv ratios. Check all that apply. 11.87% A higher operating margin than the indu 4.19% be indicates eith If a company's operating margin increases but its profit margin dec An increase in the return on assets ratio implies an increase in the a If a company issues no