How Do We Calculate A Companys Historical Operating Profit Margin?
Returning to our Gateway case study, we can calculate operating profit margin using two methods: 1. Annual SEC 10-K filings. You can access Gateway’s income statement from its fiscal 1999 filings by clicking here. Looking at this page, the information we need comes from this portion of the income statement: 1995 1996 1997 1998 1999 Net sales ($, MM) $3,676.3 $5,035.2 $6,293.7 $7,467.9 $8,645.6 Cost of goods sold ($, MM) 3,060.5 4,071.6 5,217.2 5,921.7 6,745.7 Gross profit ($, MM) 615.8 963.6 1,076.4 1,546.3 1,899.8 Selling, general, and administrative expenses ($, MM) 366.8 607.5 786.2 1,052.0 1,304.1 Nonrecurring expenses ($, MM) 113.8 Operating income ($, MM) 249.0 356.1 176.4 494.2 595.7 Note: 1995 and 1996 income statement data was obtained here. Let’s walk through the calculation of operating profit margin for 1997: • Sales. We start by noting that Gateway had sales of $6,2937.7 million in 1997. • Cost of goods sold (COGS). We then subtract Gateway’s cost of goods sold of $5,217.2
