Profitability ratios

Profitability ratios help you analyze 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.$\text{'}$s income statement for the last two years. The company had assets of $$9,400$ million in the first year and

$$15,037$ million in the second year. Common equity was equal to $$5,000$ million in the first year, $100\%$ of earnings were paid out as dividends in the

second year, and the firm did not issue new shares in the second year.

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

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

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.

An increase in the return on total 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.

A higher operating profit margin than the industry average indicates either lower operating costs or higher product pricing, or both.