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 Spandust Industries Inc. and make comments on its second-year performance as compared with its first-year performance. The following shows Spandust Industries Inc.'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. Year 2 Spandust Industries Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 1 Net Sales 6,350 5,000 Operating costs except depreciation and amortization 1,855 1,723 Depreciation and amortization 318 200 2,173 1,923 Total Operating costs Operating Income (or EBIT) 4,177 3,077 Less: Interest 564 400 3,613 2,677 Earnings before taxes (EBT) Less: Taxes (40%) 1,445 1,071 Net Income 2,168 1,606 Calculate the profitability ratios of Spandust Industries Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 Operating margin 61.54% Profit margin 34.14% Return on total assets 13.67% Return on common equity 25.70% Basic earning power 22.22% 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. A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both. If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in a company's earnings means that the profit margin is increasing. If a company issues new common shares but its net income does not increase, return on common equity will increase