The following shows Blur Corp.'s income statement for the last two years. The company had assets of $7,050 million in the first year and $11,278 million in the second year. Common equity was equal to $3,750 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. Blur Corp. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 3,810 3,000 Operating costs except depreciation and amortization 1,120 1,040 Depreciation and amortization 191 120 Total Operating costs 1,311 1,160 Operating Income (or EBIT) 2,499 1,840 Less: Interest 250 239 Earnings before taxes (EBT) 2,249 1,601 Less: Taxes (40%) 900 640 Net Income 1,349 961 Value Ratio Year 2 Year 1 Operating margin 61.33% Net profit margin 35.41% Return on total assets 13.63% Return on common equity 25.63% Basic earning power 22.16% 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. Fuzzy Button Clothing Company just reported earnings after tax (also called net income) of $9,250,000, and a current stock price of $36.75 per share. The company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to issue 3,000,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,500,000). If Fuzzy Button's forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does the company's management exp its stock price to be one year from now? (Note: Round intermediate calculations to four decimal places. Round the expected stock price to two decimal places.) $29.72 per share $37 per share $22.29 per share $37.15 per share One year later, Fuzzy Button's shares are trading at $48.36 per share, and the company reports the value of its total common equity as $50,524,000. Given this information, Fuzzy Button's market-to-book (M/B) ratio is (Note: Do not round intermediate calculations.) Is it possible for a company to exhibit a negative EPS and thus a negative P/E ratio? No Yes Which of the following statements is true about market value ratios? Low P/E ratios could mean that the company has a great deal of uncertainty in its future earnings. High P/E ratios could mean that the company has a great deal of uncertainty in its future earnings