Income Statements Analysis - Essay Example

Download file to see previous pages The “profit margin” is a good indicator of how a company is able to manage costs in its operations, for example, selling stock. It does not mean that if the total earnings of a company are increasing, then, the profit margin improves. When the costs increase at a greater rate than the sales, then the profit margin reduces. The opposite of this statement is also true.
Note that net income is a perfect indicator of the financial health of a company. Net income also indicates the performance of the of the core business operations. The net income is calculated by deducting the expenses from the sales revenue (Fridson, Alvarez and Finance Pro, 2011). As stated earlier, the net profit margin is computed from the net income and sales’ values indicated in the income statement and thus it is also important to discuss the income statement in this section.
The income statement mainly includes the items directly or indirectly related to the companies’ activities. The activities can be primary or secondary. Examples of the items included in the income statement may include incomes, revenue, cost of goods sold, tax expenses and gross profit. With these items, we can therefore, compute the net profit margins, which are necessary in determining the profitability of a company from its operations.
Before comparing the profit margins for each company, it is important to look at how each company has prepared its income statement. Emaar Properties PJSC and Arabtec Holding PJSC have indicated the particular items included in their income statements. The other companies have indicated the specific items included in their income statements. For example, Emaar Properties’ income statement includes the cost of goods sold, revenue, gross profit, administrative cost profit before tax and tax expense. The company has eliminated other, operating expenses, other operating income, ...Download file to see next pagesRead More