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High of Profit/Low Operating Income

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Provide an example from the Internet that demonstrates a situation in which a company's net profits looked good in the statements, but the gross or operating profits presented a different picture.

Discuss how this might have occurred.

"Why is the bottom-line figure, net income, not necessarily a good indicator of a firm's financial success?" (Hint: Look for indicators like liquidity or solvency to answer this question.)

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Solution Summary

The solution describes how a firm could could post good net profits but poor operating income at the same time.

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The attached articles explain real situations where net profits looked good, but operating profits were relatively lacking:

http://economictimes.indiatimes.com/News/News_By_Industry/Energy/Oil__Gas/Extraordinary_gains_keep_petroleum_sector_afloat/rssarticleshow/2783828.cms

http://indexet.gazetamercantil.com.br/arquivo/2008/08/20/375/Extraordinary-gains-raise-net-results-of-HSBC-Seguros.html

The two companies involved were able to show strong net profits despite weak sales because of ...

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