# elements of the income statement fd3

Firm to analyze: Under Armour

By Thursday of this week, go to finance.yahoo.com and choose a company that you wish to analyze. Enter the company name in the box to the left of â€œGet Quotesâ€ near the top left of the page. Once you have the company overview page open, to the left you will see a list of links for further information on that firm. Near the bottom of the link column are financial statements. Open the firmâ€™s income statement; this is the firmâ€™s most recently reported annual income statement. You should see 3 years of data in almost all cases. If you do not, choose another firm. The dates of the income statement will vary by company since companies may or may not have a fiscal year end of December 31.

Using the income statement you found, compute your chosen firmâ€™s gross profit margin, operating income margin, and net income margin (using the equations found in this moduleâ€™s instruction) for the past 3 years. Include the numerator and denominator for each ratio. After you report the ratios, please discuss the economic interpretation of your results.

Example of format below:

The Gap a major retailer has been around since 1969. Since the creation of The Gap it has added a few affiliates to their portfolio, like Old Navy and Banana Republic.

Gross Profit Margin

2/3/2018 is 6,066,000 / 15,855,000 = 38%

1/28/17 is 5,640,000 / 15,516,000 = 36%

1/30/2016 is 5,720,000 / 15,797,000 = 36%

This margin helps show investors how much gross profit every dollar of revenue a company is earning. With that logic, the gross profit for The Gap would be .38 cents for every dollar in 2018 and .36 cents for every dollar earned in 2017 and 2016.

Operating Profit Margin

2/3/2018 is (6,066,000 -1,479,000) / 15,855,000 = 29%

1/28/17 is (5,640,000 â€“ 1,191,000) / 15,516,000 = 29%

1/30/2016 is (5,720,000 â€“ 1,524,000) / 15,797,000 = 27%

This helps show what is left of profit once wages, raw materials, etc. is paid and if a company does well at controlling their costs. As you can see above The Gap is consistent with their operating profits.

Net Profit Margin

2/3/2018 is 848,000 / 15,855,000 = 5.3%

1/28/17 is 676,000 / 15,516,000 = 4.4%

1/30/2016 is 920,000 / 15,797,000 = 5.8%

The net profit includes all costs unlike the gross profit. This shows the total sales achieved by the company and is the most important ratio out of the three. Of course, the higher the ratio the more effective a company is with cost control. Investors use this ratio to compare against the industry to see how effective management and operations are. The Gapâ€™s best performing year out of the last three was 2016.

References:

https://finance.yahoo.com/quote/GPS/financials?p=GPS