From the course: Corporate Financial Statement Analysis
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Example: Nordstrom vs. Microsoft
From the course: Corporate Financial Statement Analysis
Example: Nordstrom vs. Microsoft
- As we've just discussed, profitability measures are in the eye of the beholder. As you can see here by looking at the income statement for Nordstrom, there are a number of profitability measures on this one income statement. You can see they disclose a gross margin, they disclose operating income, they disclose earnings before taxes, and they disclose net earnings or net income. You can also see that they use the terms income and earnings interchangeably, the point? When someone uses the term profit or profitability, you need to ask them to be more specific. Are they referring to gross profit or operating profit? Operating profit or net earnings? You can not expect companies from different industries to look the same. We saw that from our DuPont framework. You can compare the overall measure of return on equity across industries but you cannot compare the components of return on equity across industries. Now, speaking of the DuPont framework, let's compute the DuPont framework…
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