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 $7,050 million in the first year and $11,278 millian in the second year. Common equity was equal to $3,7s0 million in the first year, and the company distributed 100 % of its eamings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Randall and Arts Inc. Income Statement For the Year Ending on December 31 (Millions of dolars) Year 2 Year 1 3,000 Net Sales 3,810 Operating costs except depreciation and amortization 1,855 1,723 Depreciation and amortization 191 120 Total Operating Costs 2,046 1,843 Operating Income (or EBIT) 1,764 1,157 Less: Interest 238 150 1,526 1,007 Earnings before taxes (EBT) Less: Taxes (25 % ) 382 252 Net Income 1,144 755 Calculate the profitability ratios of Randall and Arts Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places Value Ratio Year 2 Year 1 Operating margin 38.57% Profit margin 30.03% Return on total assets 10.71% Return on common equity 20.13% Basic earning power 15.64% 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 the return on assets ratio implies an increase in the assets a firm owns If a company issues new common shares but its net income does not increase, return on common equity will increase