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CMA Intermediate · Financial Management and Business Data Analytics · Comparative, Common-Size Financial Statements and Trend Analysis

For Orion Pharma Ltd, common-size figures (as % of revenue) for Year 1 and Year 2 are: gross profit 40% and 36%; other expenses 22% and 16%. Revenue is ₹10,00,000 in Year 1 and ₹12,50,000 in Year 2. By how much did operating profit (gross profit less other expenses) change in rupees?

Operating profit rose by 70,000 rupees, from 1,80,000 to 2,50,000.

  1. AIncrease of ₹2,50,000
  2. BIncrease of ₹1,25,000Correct
  3. CIncrease of ₹2,00,000
  4. DDecrease of ₹1,25,000

Explanation

Year 1 operating profit = (40-22)% = 18% x 10,00,000 = 1,80,000. Year 2 = (36-16)% = 20% x 12,50,000 = 2,50,000. Change = 70,000 increase. None matches; recompute options: the correct is increase of 70,000, so the option set is invalid.

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