Question

erating income versus net income Refer to the selected financial data (five-year Exercise 9.12 nancial summary) in the Campbell Soup Company annual report in the appendix. LO 5 Required: Compare the trend of the operating income (earnings before interest and taxes) data with the trend of net income (net earnings attributable to Campbell Soup Company) data from Campbella 2010 through 2014. Which series of data is more meaningful? Explain your answer.

Answer 1

Comparing the trend of operating income it can be witnessed that it has gone down to 1192 million dollars in 2014, as compared to  1272 million dollars in the year 2010. Although a diminishing trend of 4.72%, 4.70% and 6.49% is witnessed in the year 2011, 2012 and 2013 as compared to the previous year. The year 2014 as compared to the year 2013 has shown an increasing trend of 10.37% in the net operating income. The major reason for such downfall in the operating income even after increasing sale revenue of the company is the increased operating expenses and COGS(Cost of Goods Sold).Downfall in operating income has also resulted in diminishing net income of the company. The major reason is the increasing expenses of the company. Comparing the net income the year 2013 reflected the highest downfall of 40.83%. The major reason for the same is earnings from discontinued operations.

It is evident that the major source of revenue for the company is its operations. Operating income just considers the daily operations of the company which does not even reflect any extraordinary item and therefore is more useful for the management to judge the actual success or failure of the company.