Questions Info lculate the profitability ratios of Diusitech Inc. in the followi
ID: 2813305 • Letter: Q
Question
QuestionsInfo
lculate the profitability ratios of Diusitech Inc. in the following table. Convert all calculations to a percentage unded to two decimal places. Ratio Value Year 2 Year 1 61.33% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 34.04% 13.63% 25.63% 22.16% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability identify which of the following statements are true about profitability ratios. check all that apply. ratios give insights into both the survivability of a company and the benefits that shareholders receive. If a company has a profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. An increase in a company's earnings means that the 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. If a company issues new common shares but its net income does not increase, return on common equity will increase.
Explanation / Answer
1. Year 2's Operating Margin = Operating Income / Net Sales
Year 2's Operating Margin = $2499 / $3810
Year 2's Operating Margin = 65.59%
2. Year 1's Profit Margin = Net Income / Net Sales
Year 1's Profit Margin = $961 / $3000
Year 1's Profit Margin = 32.03%
3. Year 2's Return on Total Assets = Net Income / Total Assets
Return on Total Assets = $1297 / $11278
Return on Total Assets = 11.50%
4. Year 2's Return on Common Equity = Net Income / Total Equity
Return on Common Equity = $1297 / $3750
Return on Common Equity = 34.59%
5. Year 1's Basic Earning Power = EBIT / Total Assets
Year 1's Basic Earning Power = 1840 / 7050
Year 1's Basic Earning Power = 26.10%
Check all that apply question
Option A If a company has a profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales.
Option C If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.