Chapter 18, Problem 3WE

a.

Summary Introduction

To calculate: The after-tax profit margin for Facebook Inc.

Introduction:

Net income:

It represents the organization’s valuation, which is calculated by subtracting the expenses, interest and taxes from the revenue earned from operations. The net income is used by the organization for computing earnings per share.

Revenue:

It is the income generated in the business during the normal course of business operations. It also includes the deductions and discounts for the returned goods. Revenue is amount from which the costs are subtracted to obtain gross income of the business. Revenue is also commonly referred to as sales in the income statement.

b.

Summary Introduction

To calculate: The ratio of cost of revenue to total revenue of Facebook Inc.

Introduction:

Cost of revenue:

Cost of revenue is the total cost of production and distribution of the goods or services to the customers. The cost of revenue is further segregated into direct cost and indirect cost.

Revenue:

It is the income generated in the business during the normal course of business operations. It also includes the deductions and discounts for the returned goods. Revenue is amount from which the costs are subtracted to obtain gross income of the business. Revenue is also commonly referred to as sales in the income statement.

d.

Summary Introduction

To calculate: The ratio of the income tax expense to the net income of Facebook Inc.

Introduction:

Income tax expense:

Income tax is the amount of tax imposed by the government on the business firm. Every business organization is subject to income tax, if there are no exemptions available in tax law, depending on the tax slab it falls in.

Net income:

Net income is represents the organization’s valuation, which is calculated by subtracting the expenses, interest and taxes from the revenue earned from operations. The net income is used by the organization for computing earnings per share.