Question

The following shows Sixty-Second Avenue Inc.'s income statement for the last two years. The company had assets of $9,400 mllion in the first year and $15,037 mil lion in the second year. Common equity was equal to $5,0DD million inthe first year, and the company distributed 100% of its earings out as dividends during the first and the second years. In addition, the firm didnot issue new stock during either year sixty-second Avenue Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 5,080 4,000 1,365 1,268 160 1,619 1,428 3,461 2,572 205 3,115 2,366 46 1,420 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 (40%) Net Income 254 346 1,246 1,869 Calculate the profitability ratios of Sixty-Second Avenue Inc. in the following table. Convert all calculations to a percentage rounded to two dedimal places Ratio Value Year 2 Year 1 Operating margin Profit margin Retum on total assets Retum on common equity Basic eaming power 64.30% 36,79% 15.11% 28.40% 23.02% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability Profitability ratios give insights into bath 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 If a company has a profit margin of 10%, it means that the company eamed a net income of $0.10 for each dollar of sales. An increase in the retum on assets ratio implies an increase in the assets a firm owns. If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. If a company issues new common shares but its net income does nat increase, retum on common equity will increase.

Answer 1