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

Narmada Pvt Ltd reports: Year 1 revenue ₹10,00,000, net profit ₹1,00,000; Year 2 revenue ₹12,00,000, net profit ₹1,50,000. Which conclusion from the comparative income statement is correct?

Net profit grew 50% against revenue growth of 20%, so the net profit margin improved from 10% to 12.5%. Profit rose faster than sales, showing better cost control or operating efficiency, which the comparative income statement reveals through the percentage changes.

  1. ANet profit rose by 50% while revenue rose by 20%, so profit margin improved from 10% to 12.5%Correct
  2. BNet profit rose by 50% while revenue rose by 20%, so profit margin fell from 12.5% to 10%
  3. CNet profit rose by 33.33% while revenue rose by 20%, so profit margin stayed at 10%
  4. DNet profit rose by 20% while revenue rose by 50%, so profit margin improved

Explanation

Profit increase = 50,000/1,00,000 = 50%. Revenue increase = 2,00,000/10,00,000 = 20%. Margins: Year 1 = 1,00,000/10,00,000 = 10%; Year 2 = 1,50,000/12,00,000 = 12.5%. So profitability improved.

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