5. Profitability ratios 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 firm Your boss has asked you to calculate the profitability ratios of Blur Corp, and make comments on its second-year performance is compared with its first year performance The following shows Blur Corp's income statement for the last two years. The company had sets of $11.750 million in the first year and $18,796 million in the second year. Common equity was equal to 56,250 million 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 lose new stock during either year, Blur 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 1,855 1,723 Depreciation and amortization 318 200 Total Operating costs 2,173 1,923 Operating Income (or EBIT) 4,177 3,077 Less: Interest 564 246 Earnings before taxes (EBT) 3,613 2,831 Less: Taxes (25%) 903 708 Net Income 2.710 2,123 Calculate the profitability ratios of Blur Curp, in the following table. Convertoll calculations to a percentage rounded to two decimal places Ratio Value Year 2 Year 1 61.54% 42.689 Operating margin Profit margin Return on total assets Return on common equity Basic earning power 18.07% 33.97% 22.22% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights int both the survivability of a company and the benefits that shareholders receive Identify which of the following statements are true about profitat ratios. Check all that apply. 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 If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in Interest orta An increase in the return on assets ratio implies an increase in the assets a firm owns If a company issues now common shares but its not income does not increase, return on common equity will increase