Ch 04: Assignment - Analysis of Financial Statements S. 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 Randall and Arts Inc and make comments on its second year performance as compared with its first-year performance The following shows Randall and Arts Inc.'s income statement for the last two years. The company had assets of $5,875 million in the first year and $9,398 million in the second year. Common equity was equal to $3,125 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. story 100 Randall and Arts Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 3,175 2,500 Operating costs except depreciation and amortization 1,365 1,268 Depreciation and amortization 159 Total Operating costs 1,524 1,368 Operating Income (or EBIT) 1,651 1,132 223 119 Earnings before the CBT) 1,426 1,013 357 253 Net Income 1.071 760 Calculate the profitability ratios of Randall and Arts Inc in the following table. Convert all calculations to a percentage rounded to two decimal places Ratio Value Year 2 Year 1 15.2846 33.73% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 12.9.4% 24.32% 17.57% Decision makers and analysts look deeply into profitability raties to identify trends in a company's profitability Profitability ratios Dive ishts into both the survivability of a company and the benefits that shareholders receive Identity which of the following statements are true about profitability ratios. Check all that apply ory A higher operating margin than the industry average indicates wither lower operating costs, higher product phong, or both a company's operating margin increases but its profit margin decreases, it could mean that the company puid more to interest of taxes Anica a company earnings means that the profit margin is increasing companies new common shares but not income does not increase return on common equity will increase