Your boss has asked you to calculate the profitability ratios of Cute Camel Woodcraft Company and make comments on its second-year performance as compared to its first-year performance. The following shows Cute Camel’s income statement for the last two years. The company had assets of $10,575,000 in the first year and $16,916,400 in the second year. Common equity was equal to $5,625,000 in the first year, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new stock in the second year. Cute Camel Woodcraft Company Income Statement For the Year Ending December 31 Year 2 Year 1 Net Sales $5,715,000 $4,500,000 Operating costs less depreciation and amortization 1,610,000 1,495,000 Depreciation and amortization $285,750 $180,000 Total Operating Costs 1,895,750 1,675,000 Operating Income (or EBIT) $3,819,250 $2,825,000 Less: Interest 515,599 367,250 Earnings before taxes (EBT) $3,303,651 $2,457,750 Less: Taxes (40%) 1,321,460 983,100 Net Income $1,982,191 $1,474,650
Calculate the profitability ratios of Cute Camel Woodcraft Company in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 Operating profit margin 62.78% Net profit margin 36.09% Return on total assets 14.75% Return on common equity 27.72%