Triptych Food Corp. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 6,350 5,000 Operating costs except depreciation and amortization 1,120 1,040 Depreciation and amortization 318 200 Total Operating Costs 1,438 1,240 Operating Income (or EBIT) 4,912 3,760 Less: Interest 663 489 Earnings before taxes (EBT) 4,249 3,271 Less: Taxes (25%) 1,062 818 Net Income 3,187 2,453 Calculate the profitability ratios of Triptych Food Corp. in the following table. Convert all calculations to a percentage rounded to two decimal places.

Question Completion:

The following shows Triptych Food Corp.'s income statement for the last two years. The company had assets of $10,575 million in the first year and $16,916 million in the second year. Common equity was equal to $5,625 million in the first year, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new shares in the second year.

Triptych Food Corp.

The profitability ratios of Triptych Food Corp.

                                               Year 2        Year 1

Net profit margin                   50.19%       49.06%

Return on total assets           18.84%       23.20%

Return on common equity    36.17%        43.61%

Basic earning power            29.04%       35.56%

Explanation:

a) Data and Calculations:

Income Statement For the Year Ending on December 31 (Millions of dollars)                                     Year 2         Year 1

Net Sales                                $6,350        $5,000

Operating costs except

depreciation and amortization 1,120           1,040

Depreciation and amortization   318             200

Total Operating Costs             1,438           1,240

Operating Income (or EBIT)    4,912           3,760

Less: Interest                            663               489

Earnings before taxes (EBT) 4,249            3,271

Less: Taxes (25%)                  1,062               818

Net Income                           $3,187         $2,453

Total assets                        $16,916        $10,575

Common equity                   $8,812         $5,625

Profitability ratios and formulas:

Net profit margin    = Net Income/Sales * 100

Return on total assets = Net Income/Total assets * 100

Return on common equity  = Net Income/Common Equity * 100

Basic earning power = EBIT/Total assets * 100

                                                      Year 2           Year 1

Net profit margin                            50.19%       49.06%

                            =  ($3,187/$6,350 * 100)  ($2,453/$5,000 * 100)

Return on total assets                    18.84%        23.20%

                            =  ($3,187/$16,916 * 100)  ($2,453/$10,575 * 100)

Return on common equity             36.17%        43.61%

                            =  ($3,187/$8,812 * 100)  ($2,453/$5,625 * 100)

Basic earning power                     29.04%       35.56%

                            =  ($4,912/$16,916 * 100)  ($3,760/$10,575 * 100)

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