Calculate the Profitability ratios of Randall and Arts Inc. in the following tab

Question

Calculate the Profitability ratios of Randall and Arts Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.

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 firnm Your boss has asked you to calculate the profitability ratios of Randall and Arts Inc. and make comments on its second-year performance as compared to its first-year performance The following shows Randall and Arts Inc.'s income statement for the last two years. The company had assets of $11,750 million in the first year and $18,796 million in the second year. Common equity was equal to $6,250 milion 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 In Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Yar 1 5,000 1,268 200 1,468 3,532 459 3,073 1,229 1,844 Net Sales 6,350 1,365 318 1,683 4,667 467 4,200 1,680 2,520 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 Calculate the profitability ratios of Randall and Arts Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places

Explanation / Answer

Solution :- Year 2 Year 1 Operating Margin 73.50% 70.64% ( Operating Profit / Sales) (4667/6350) Profit Margin 39.69% 36.88% (Net Profit / Sales) (1844/5000) Return on To. Assets 13.41% 15.69% (Net Income / To. Assets) (2520/18796) Return on Common Equity 40.32% 29.50% (Net Income / Equity ) (2520/6250) Basic Earning Power 24.83% 30.06% (EBIT / To. Assets) (3532/11750) Solution 2:- The Statement (i) is true that A higher operating margin than the industry average indicates that either lower operating costs , higher product pricing or both Feel Free to ask any query through comments as your satisfaction is very valuable Rate it if it is correct

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