Question

The following shows Randall and Arts Inc.'s income statement for the last two years. The company had assets of $7,050 million in the first year and $11,278 million in the second year. Common equity was equal to $3,750 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 Randall and Arts Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Yar 1 Net Sales 3,810 1,610 191 1,801 2,009 271 1,738 695 1,043 3,000 1,495 120 1,615 1,385 Operating costs except depreciation and amortization Depreciation and amortization Total Operating Costs Operating Income (or EBIT) Less: Interest Earnings before taxes (EBT) Less : Taxes (40%) Net Income 1,274 510 764

Answer 1

1.Operating Margin Year 2 = 2009/3810 = 52.73%
Profit Margin Year 1 = 764/3000 = 25.47%
Return on Total Assets Year 2 = Net income/Total Assets = 1043/11,278 = 9.25%
Return on Equity Year 2 = Net income/Total Equity = 1043/3750 = 27.81%
Basic Earning Power Year 1 = EBIT/Total Assets = 1385/7050 = 19.65%

2. Option a,c are correct
Option b and d are incorrect.

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