RICES X 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 Petroxy Of Co. and make comments on its second-year performance as compared with its first-year performance The following shows Petroxy Oil Co.'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 ar dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Petroxy Oll Co. 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 1,610 1,495 Depreciation and amortization 127 80 Total Operating costs 1,737 1,575 Operating Income (or EBIT) 803 425 Less: Interest 108 34 Earnings before taxes (EBT) 695 391 Less: Taxes (25%) 174 98 Net Income 521 293 Calculate the profitability ratios of Petroxy Oil Co. in the following table. Convert all calculations to a percentage rounded to two decimal places Value Ratio Year 2 Year 1 21.25 Operating margin Daima 20 510 DAUD 145701 Net Income 174 521 98 293 Calculate the profitability ratios of Petroxy Oil Co. In the following table Convert all calculations to a percentage rounded to two decimal por Ratio Value Year 2 Year 1 21.25% 20.51% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 6.23% 11.72% 10.68% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability Profitability ratios pive inwghts 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. If a company has a profit margin of 10%, it means that the company earned a net income of $0.20 for each dollar of sales, If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interes 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 Grade it Now Sale & Continue Continue without saving
