Calculation of tax rates. A multinational computer equipment manufacturer reported the following amounts for two recent years (in millions of U.S. dollars). The firm applies U.S. GAAP.
|
2008 |
2007 |
|
|
Revenues |
$ 88,396 |
$ 87,548 |
|
Expenses |
(76,862) |
(75,791) |
|
Income Before Income Taxes |
$ 11,534 |
$ 11,757 |
|
Income Tax Expense |
(3,441) |
(4,045) |
|
Net Income |
$ 8,093 |
$ 7,712 |
a. Compute the ratio of net income divided by revenues for each year.
b. Compute the ratio of income before taxes divided by revenues for each year.
c. Compute the ratio of income tax expense divided by income before taxes, a ratio called the effective tax rate.
d. What do these ratios suggest as to the principal reason for the change in profitability between 2007 and 2008?