10. Crystal has been asked to calculate the profitability ratios of Cold Goose Metal Works, Inc. and make comments on its second-year performance as compared to its first-year performance.

The following shows Cold Gooses income statement for the last two years. The company had assets of $4,700,000 in the first year and $7,518,400 in the second year. Common equity was equal to $2,500,000 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.

Given the income statements, calculate the profitability ratios of Cold Goose Metal Works, Inc.

Which of the following statements are true about profitability ratios? Check all that apply.

If a company has a net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales.

If a companys operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.

An increase in the return on assets ratio implies an increase in the assets a firm owns.

If a company issues new common shares but its net income does not increase, return on common equity will increase.

Cold Goose Metal Works, Inc. Income Statements Years Ending December 31 Year \begin{tabular}{lcc} \hline & Year 2 & Year 1 \\ \hline Net Sales & $2,540,000 & $2,000,000 \\ \hline Operating costs less depreciation and amortization & 1,855,000 & 1,722,500 \\ Depreciation and amortization & 127,000 & 80,000 \\ \hline Total Operating Costs & $1,982,000 & $1,802,500 \\ \hline Operating Income & $558,000 & $197,500 \\ \hline Interest & 55,800 & 25,675 \\ \hline Earnings before taxes & $502,200 & $171,825 \\ \hline Taxes (40\%) & 200,880 & 68,730 \\ \hline Net Income & $301,320 & $103,095 \\ \hline \end{tabular}