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Financial Statements - Essay Example

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The gross profit ratio of Google indicates that it is a profitable company because its mark-up ranges from 58% to a high of 64%. In this…
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Financial Statements
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Company Google Source: http ment&annual I. Gross profit margin Formula: gross profit total profit = gross profit margin expressed in percentage
Year 2010 (number in thousands)
Gross profit: 18,904,000
Total Profit: 29,321,000
Gross profit margin : 64%
Year 2011
Gross profit: 24,717,000
Total profit: 37,905,000
24,717,000/37,905,000 = .65
Gross profit margin: 65%
Year 2012
Gross profit: 29,541,000 
Total Profit: 50,175,000  
29,541,000 / 50,175,000  = .588
Gross profit margin = 58%
II. Operating income margin
Formula: operating income/revenue
Year 2010 (number in thousands)
Operating income: 10,381,000  
Revenue: 29,321,000 
10,381,000  / 29,321,000 = .35
Operating income margin = 35%
Year 2011
Operating income: 11,742,000
Revenue: 37,905,000
11,742,000 / 37,905,000 = .30
Operating income margin = 30%
Year 2012
Operating income: 12,760,000 
Revenue: 50,175,000
12,760,000 / 50,175,000 = .25
Operating income margin = 25%
III. Net income margin
Formula: net income/sales revenue
Year 2010 (number in thousands)
Net income: 8,505,000
Revenue : 29,321,000 
8,505,000 / 29,321,000 = .29
Net income margin = 29%
Year 2011
Net income: 9,737,000
Revenue : 37,905,000 
9,737,000 / 37,905,000 =.25
Net income margin = 25%
Year 2012
Net income: 10,737,000  
Revenue : 50,175,000  
10,737,000  / 50,175,000  = .21
Net income margin = 21%
Economic interpretation of results
a. Gross profit margin
Gross profit margin is also known as the percentage mark up or the rate of added profit to the cost of the product service sold or rendered. The gross profit ratio of Google indicates that it is a profitable company because its mark-up ranges from 58% to a high of 64%. In this ratio, 2012 is a conservative year for Google because it has only a margin of 58%
b. Operating income margin
The operating ratio indicates the net profit realized on each dollar of sales. Google fared very well with this ratio registering an operating margin of 25% to 35% indicating that for every dollar of sales, it makes a net profit of $.25 to $.35 and this is very laudable considering that there is a global recession. This ratio also indicates the efficiency of Google in the use of its resources to realize a profit.
c. Net income margin
Net income margin indicates the ratio of net income compared to gross sales. The higher the ratio, the better because it indicates that its expenses is below the gross sales. Again, Google proved to be profitable making at least 25% net income margin in 2012 despite the global ratio with similar ratio in 2011 and a high of 29% in 2010. Read More
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