Your boss has asked you to calculate the profitability ratios

Question : Your boss has asked you to calculate the profitability ratios : 8999

Your boss has asked you to calculate the profitability ratios of Dennham Inc. and make comments on its second-year performance as compared to its first-year performance The following shows Dernham Inc.'s income statement for the last two years. The company had assets of $8,225 million in the first year and $13,157 million in the second year. Common equity was equal to $4,375 million in the first year, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new stock in the second year. Dernham Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 4,445 3,500 Operating costs except depreciation and amortization 1,855 1,723 Depreciation and amortization 222 140 Total Operating Costs 2,077 1,863 operating Income (or EBIT) 2,368 1,637 Less: Interest 320 213 Earnings before taxes (EBT) 2,048 1,424 Less: Taxes (40%) 819 5700 Net Income 1,229 854 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 Operating profit margin 46.77% Net profit margin 27.65% Return on total assets 10.38% Return on common equity 19.52% Basic earning power 18.00% 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. O A higher operating profit margin than the industry average indicates either lower operating costs, higher product pricing, or both. O An increase in a company's earnings means that the net profit margin is increasing. If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. O If a company issues new common shares but its net income does not increase, return on common equity will ncrease

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Finance 1 Year Ago 144 Views
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