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7. ANALYSIS OF THE INCOME STATEMENT
The following operating profitability ratios measure the rates of profit on sales (profit margins).
Net Profit Margin shows how much profit is generated on every dollar of sales.
<span>Net income is earnings after tax but before dividends (EBIT - interest - taxes). It should be based on earnings from the company's continuing operation because the analysis is to forecast the company's future performance. Thus analysts should not consider earnings from discontinued operations, gains or losses from the sale of discontinued operations, and non-recurring income or expenses.
Gross Profit Margin equals percent of sales available after deducting cost of goods sold.
This percentage is available to cov