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CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis

Aarav Ltd's revenue from operations rose from ₹40,00,000 in the previous year to ₹50,00,000 in the current year, while its net profit rose from ₹4,00,000 to ₹4,50,000. Taking the previous year as the base, which conclusion from comparative analysis is correct?

Revenue grew 25% and net profit grew 12.5% on the previous-year base. Because profit grew more slowly than revenue, the net profit margin fell from 10% to 9%. Using the current year as base or claiming a rising margin contradicts the figures.

  1. ARevenue grew 25% and profit grew 12.5%, so profit margin fell from 10% to 9%Correct
  2. BRevenue grew 20% and profit grew 12.5%, so profit margin rose
  3. CRevenue grew 25% and profit grew 12.5%, so profit margin rose to 11%
  4. DRevenue grew 25% and profit grew 11.25%, so profit margin stayed at 10%

Explanation

Revenue growth = 10/40 = 25%. Profit growth = 0.5/4 = 12.5%. Margin was 4/40 = 10% and is now 4.5/50 = 9%, so it fell. The 20% option uses the current year as base.

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