Your boss has asked you to calculate the profitability ratios of Cold Goose Metal Works, Inc. and make comments on its second$-$year performance as compared to its first$-$year performance.

The following shows Cold Goose$$s income statement for the last two years. The company had assets of $$11,750,000$ in the first year and $$18,796,000$ in the second year. Common equity was equal to $$6,250,000$ 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.

Cold Goose Metal Works, Inc.

Income Statement For the Year Ending December $31$ Year $2$ Year $1$

Net Sales $$6,350,000$ $$5,000,000$

Operating costs less depreciation and amortization $1,365,0001,267,500$

Depreciation and amortization $$317,500$ $$200,000$

Total Operating Costs $1,682,5001,467,500$

Operating Income $($or EBIT$)$ $$4,667,500$ $$3,532,500$

Less: Interest $466,750459,225$

Earnings before taxes $($EBT$)$ $$4,200,750$ $$3,073,275$

Less: Taxes $(40\%)1,680,3001,229,310$

Net Income $$2,520,450$ $$1,843,965$

Calculate the profitability ratios of Cold Goose Metal Works, 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 Year $2??70\mathrm{.}65\%$

Net profit margin $39\mathrm{.}69\%$ Year $1??$

Return on total assets Year $1??15\mathrm{.}69\%$

Return on common equity Year $1??29\mathrm{.}50\%$

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.

Statement $1>$If a company has a net profit margin of $10\%,$ it means that the company earned a net income of $$0\mathrm{.}10$ for each dollar of sales.

Statement $2>$If a company$$s operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.

Statement $3>$An increase in a company$$s earnings means that the net profit margin is increasing.

Statement $4>$If a company issues new common shares but its net income does not increase, return on common equity will increase.