7-37 Profitability Ratios Valencia Company had the following income statements for 20X1 and 20X2: 20X2 20X1 $1,600 $1,500 Sales 950 Cost of goods sold 920 Gross margin 650 580 Operating expenses 224 210 Operating income 426 370 166 Income taxes 148 $ 260 $ 222 Net income Valencia Company generally paid dividends approximately equal to its net income. This resulted in the company's stockholders' equity totaling $1,480 at the end of both 20X0 and 20X1. However, at the end of 20X2 the company's total stockholders' equity was $2,080 primarily because of a large issuance of common stock in mid-20X2. 1. Compute Valencia Company's gross margin percentage, the return on sales, and the return on stockholders' equity for 20X1 and 20X2. 2. As a stockholder, would you have been pleased about the change in performance between 20X1 and 20X2? Explain why or why not