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 as compared to its first-year performance. The following shows Blur Corp.'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 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 issue new stock during either year Blur Corp. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 5,000 Net Sales 6,350 Operating costs except depreciation and amortization 1,120 1,040 Depreciation and amortization 318 200 1,438 1,240 Total Operating Costs Operating Income (or EBIT) 4,912 3,760 Less: Interest 491 489 4,421 Earnings before taxes (EBT) 3,271 Less: Taxes (40%) 1,768 1,308 Net Income 2,653 1,963 Calculate the profitability ratios of Blur Corp. in the following table. Convert all calculations to a percentage rounded to two decimal places Ratio Value Year 2 Year 1 75.20% Operating profit margin Calculate the profitability ratios of Blur Corp. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 Operating profit margin 75.20% Net profit margin 41.78% Return on total assets 16.71% Return on common equity 31.41% Basic earning power 26.13% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights into both the survivability of a company and the benefits that shareholders receive Identify 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. An increase in a company's earnings means that the net profit margin is increasing. If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. If a company issues new common shares but its net income does not increase, return on common equity will increase