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

Rohan Ltd's sales index (base year = 100) in Year 4 is 150, and its net profit index is 210. In the base year, net profit was 10% of sales. What is net profit as a percentage of sales in Year 4?

The Year 4 net profit margin is 14%. Taking base sales as 100 and profit as 10, Year 4 sales are 150 and profit is 21. Dividing 21 by 150 gives 14%. The margin is the base margin scaled by the ratio of the two indices.

  1. A14%Correct
  2. B15%
  3. C21%
  4. D31.5%

Explanation

Let base sales be 100, so profit is 10. Year 4 sales = 150 and profit = 10 × 2.10 = 21. Margin = 21/150 × 100 = 14%. Check: 10% × 210/150 = 14%. The 21% figure ignores the growth in sales, and 15% wrongly assumes margin rises with the sales index.

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