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Operating margin	(70.55% or 74.66% or 41.96% or 58.79%)	53.29%
Profit margin	38.13%	(48.43% or 36.77% or 28.95% or 49.64%)
Return on total assets	(12.88% or 9.78% or 14.81% or 20.61%)	15.65%
Return on common equity	(38.74% or 34.48% or 47.65% or 29.06%)	29.42%
Basic earning power	19.86%	(31.77% or 22.67% or 17.00% or 14.17%)

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 $8,225 million in the first year and $13,157 million in the second year. Common equity was equal to $4,375 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. 222 140 Randall and Arts Inc. Income Statement for the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 4,445 3,500 Operating costs except depreciation and amortization 1,610 1,495 Depreciation and amortization Total Operating costs 1,832 1,635 Operating Income (or EBIT) 2,613 Less: Interest 353 149 Earnings before taxes (EBT) 2,260 1,716 Less: Taxes (25%) 565 429 Net Income 1,695 1,287 1,865 Calculate the profitability ratios of Randall and Arts Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 53.29% 38.13% Operating margin Profit margin Return on total assets Return on common equity Basic earning power 15.65% 29.42% 19.86% 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. If a company has a profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. 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