Question

	Results for the Years Ending (in millions)
	Oct 27, 2013	Oct 28, 2012	Oct 30, 2011
Net sales	$              7,509	$              8,719	$             10,517
Less: Cost of goods sold	4,518	5,406	6,157
Gross profit	2,991	3,313	4,360
Sales, general and administrative	469	595	469
Research and development (R&D)	1,320	1,237	1,118
Restructuring, impairment, and amortization	63	168
Purchased in-process R&D
Other operating expenses	707	902	375
Total operating expenses	2,559	2,902	1,962
Operating profit (loss)	432	411	2,398
Other income (expenses), net excluding interest expense	13		39
Earnings (loss) before interest and taxes	445	411	2,437
Interest expense	95	96	59
Earnings (loss) before taxes	350	316	2,378
Provision for (benefit from) income taxes	94	207	452
Earnings (loss) after taxes	256	108	1,926
Extraordinary items, net
Discontinued operations, net
Cumulative effect of changes in accounting principles, net
Other after-tax income (loss), net
Net profit (loss)	$                 256	$                 109	$              1,926
Basic earnings per common share

1) Discuss the changes that occurred in four separate accounts. Written analysis should be 3 or 4 paragraphs, but no more than 4 paragraphs. I have provided some ideas of accounts to discuss. Remember to refer to back to the MD&A and notes to the financial statements to understand WHY the changes occurred.

Ideas for discussion

• Sales
• Gross profit margin
• Operating profit margin
• R&D expense
• Selling, general and administrative (SG&A).
• Impairment charges
• Other income & expenses
• Effective tax rate
• Net profit margin

Answer 1

An obvious reason for a decline in operating profit is a decline in sales. However, it's possible to increase your sales revenues and suffer a profit decrease. This can occur if your sales increase comes from higher sales of low-margin items while you suffer a decrease of sales of high-margin products.

The gross margin represents the portion of each dollar of revenue that the company retains as gross profit. ... For example, if a company's gross margin is falling, it may strive to slash labor costs or source cheaper suppliers of materials. Alternatively, it may decide to increase prices, as a revenue increasing measure.

The capital and assets of a firm will increase when R&D expenses are capitalized, but the extent of the change will depend upon how long the company has been in existence and its cumulated R&D over that period. ... current value of the research asset since they would have been entirely amortized by now.

General and administrative expenses typically refer to expenses that are still incurred by a company, regardless of whether the company produces or sells anything. ... General and administrative expenses are also typically fixed costs in nature, as they would stay the same regardless of the level of sales that occur.

If an asset is impaired, the impairment loss is recognized in the income statement just like any other operating expenses. With impairment loss being recognized, the net profit is impacted negatively.

In accounting, an "expense" is a decrease in owners equity that results when the firm uses up assets in producing revenue or supporting other activities in normal operations.

Increasing valuation allowances correspondingly increases income tax expense, which ultimately drives increases in effective tax rates. Decreasing valuation allowance correspondingly decreases income tax expense, which ultimately causes decreases in effective tax rates and as the tax rate reduces the company can keep more revenue with itself and has to offer less to teh government and therefore,more profit and retained earnings for the company in turn.

A decline in net profit margin means a decline in performance and profitability levels. Net profit margin is determined by the difference between total revenue and total expense. ... A lower margin compared to other margins is indicative of a lower performance level.