Custom «Income Margin Ratio » Essay Paper Sample

Income Margin Ratio

Companies use the net income margin to measure the rate if controlling total expenses. It is measure of much the company retains as earning out of every dollar it sales. It a very important in comparing companies of the same industry. The higher the net income margin the better the controls of over its costs over its competitors. The net come margin is calculated by taking the net income as a percentage of total sales (Charles H. Gibson. 2010). The table below shows Walmart’s sales, net profit and the net profit margin rounded off to three decimal places.

(Amount in millions dollars except net profit margin)

2011 2010 2009 2008

Net sales 418,952 405,132 401,087 344,759

Net income 15,355 14,449 13,235 12,841

Net income margin 3.665% 3.566% 3.3% 3.724%

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The table shows that the net profit margin fell drastically from 2008 to 2009, but rose gradually from 2009 to 2011 but did not get to the level of 2008. The company however had very little sales in 2008 this could have been due to the 2008 economic recession that lowered the buying power of customers. The small sales however, enabled the company to have little activity and therefore control the costs. With the drastic increase of sales in 2009 the company may have found it difficult to control the cost. The rise in the expenses might have been due to measures taken by the company to increase sales such as advertising costs, and discounts offered to customers. The sales continued to rise in the subsequent years but the ratio did not fall rather, it started rising the company must have been able to find ways of controlling the cost even with the high sales. In 2011, the company came to achieving almost the same level of income to sales ration in 2011 as in 2008 while the sales value in this year was 22% higher.

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