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) A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both.
b) If a company’s operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes.
c) An increase in a company’s earnings means that the profit margin is increasing.
d) If a company issues new common shares but its net income does not increase, return on common equity will increase.