Example 1
Suppose there are 2 Companies A and B
A earned profit of 10000 on a turnover of 100000
B earned a profit of 15000 on a turnover of 500000
Calculate Profit as a percentage of Sales of both Companies
View answer
|
Particulars |
Company A |
Company B |
|
Profit |
10000 |
15000 |
|
Sales |
100000 |
500000 |
|
Profit/Sales |
10% |
3% |
Which Company is better?
View answer
If we consider profit, Company B is earns more profit
If we Consider Profit %, Company A is better
Which is the ideal Profit/Sales ratio
View answer
It depends upon business to business
Some business has higher profit margin while others have low margin
Example:- Retail Business have more margin than wholesale business
Example 2
Suppose a Company earned profit in 2 years as follows
|
Particulars |
2016 |
2017 |
|
Profit |
8000 |
9000 |
|
Sales |
100000 |
150000 |
Has the Company’s performance in 2017 improved?
View answer
|
Particulars |
2016 |
2017 |
|
Profit |
8000 |
9000 |
|
Sales |
100000 |
150000 |
|
Profit/Sales |
8% |
6% |
Company’s profit has marginally increased from 8000 to 9000
However, the Company’s Profit % has reduced form 8% to 6%
Hence, to earn a small increase in profit, Company had to make a large increase in sales
Hence, Company’s performance has not improved