Your boss has asked you to calculate the profitability ratios of Blue Hamster Manufacturing, Inc. and make comments on its second-year performance as compared to its first-year performance.

The following shows Blue Hamsters income statement for the last two years. The company had assets of $10,575,000 in the first year and $16,916,400 in the second year. Common equity was equal to $5,625,000 in the first year, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new stock in the second year.

Blue Hamster Manufacturing, Inc.
Income Statement For the Year Ending December 31	Year 2	Year 1
Net Sales	$5,715,000	$4,500,000
Operating costs less depreciation and amortization	1,120,000	1,040,000
Depreciation and amortization	$285,750	$180,000
Total Operating Costs	1,405,750	1,220,000
Operating Income (or EBIT)	$4,309,250	$3,280,000
Less: Interest	581,749	344,400
Earnings before taxes (EBT)	$3,727,501	$2,935,600
Less: Taxes (40%)	1,491,000	1,174,240
Net Income	$2,236,501	$1,761,360

Calculate the profitability ratios of Blue Hamster Manufacturing, Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places.

Ratio		Value
	Year 2	Year 1
Operating profit margin		72.89%
Net profit margin	39.13%
Return on total assets		16.66%
Return on common equity		31.31%

Decision makers and analysts look deeply into profitability ratios to identify trends in a companys 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 profit margin than the industry average indicates either lower operating costs, higher product pricing, or both.

If a companys operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.

An increase in a companys earnings means that the net profit margin is increasing.

If a company issues new common shares but its net income does not increase, return on common equity will increase.