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 fim 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 $5,225 million in the first year and $13,157 million in the second year. Common equity was equal to 14,375 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 4,445 3.500 1.268 Randall and Arts Inc. Income Statement for the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales Operating costs except depreciation and amortization 1,365 Depreciation and amortization 222 140 Total Operating costs 1,587 Operating Income (or EBIT) 2.858 2.092 Less: Interest 386 Earnings before taxes (ET) 2,472 1.572 Less: Taxes (25%) Net Income 1,854 1404 1.405 220 618 456 Calculate the profitability ratios of Randal and Arts Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 59.779 41.71% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 17.07% 32.09 21.72% A Decision makers and analysts look deeply into profitability ratios to identty trends in a company's profitability Profitability ratios give insights into both the survivability of a company and the benefits that shareholders receive frently which of the following statements are true about profitability ratios. Check all that apply. A higher operating margin than the industry average indicates other lower operating costs, higher product pricing, or both. Olla 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