Financial Statements - Essay Example

Company Google Source: http finance.yahoo.com/q/is?s=GOOG+Income ment&annual I. Gross profit margin Formula: gross profit total profit = gross profit margin expressed in percentageYear 2010 (number in thousands)Gross profit: 18,904,000Total Profit: 29,321,00018,904,000/29,321,000=.64Gross profit margin : 64%Year 2011Gross profit: 24,717,000Total profit: 37,905,00024,717,000/37,905,000 = .65Gross profit margin: 65%Year 2012Gross profit: 29,541,000 Total Profit: 50,175,000  29,541,000 / 50,175,000  = .

588Gross profit margin = 58%II. Operating income marginFormula: operating income/revenueYear 2010 (number in thousands)Operating income: 10,381,000  Revenue: 29,321,000 10,381,000  / 29,321,000 = .35Operating income margin = 35%Year 2011Operating income: 11,742,000Revenue: 37,905,00011,742,000 / 37,905,000 = .30Operating income margin = 30%Year 2012Operating income: 12,760,000 Revenue: 50,175,00012,760,000 / 50,175,000 = .25Operating income margin = 25%III. Net income marginFormula: net income/sales revenueYear 2010 (number in thousands)Net income: 8,505,000Revenue : 29,321,000 8,505,000 / 29,321,000 = .

29Net income margin = 29%Year 2011Net income: 9,737,000Revenue : 37,905,000 9,737,000 / 37,905,000 =.25Net income margin = 25%Year 2012Net income: 10,737,000  Revenue : 50,175,000  10,737,000  / 50,175,000  = .21Net income margin = 21%Economic interpretation of resultsa. Gross profit marginGross 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 marginThe 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 marginNet 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.