These six questions use the three lessons in performance beyond one ratio. Every business and figure is fictional.
Work the figures, then write your conclusion before you open each block.
Questions
Question 1. A shop’s sales rose from RM80 000 to RM100 000. Its cost of sales rose from RM48 000 to RM65 000, and its expenses stayed at RM20 000. Find the net profit in each year and say whether profit rose or fell.
Answer
Year 1 net profit = 80 000 − 48 000 − 20 000 = RM12 000.
Year 2 net profit = 100 000 − 65 000 − 20 000 = RM15 000.
Profit rose by RM3 000. The gross margin fell from 40% to 35%, so profit grew by less than sales.
Question 2. A stall’s sales rose by RM30 000 but its net profit fell by RM4 000. Give two possible causes.
Answer
Cause 1: discounts or higher supplier prices raised cost of sales by more than the extra sales. Cause 2: extra costs such as wages or rent rose by more than the extra gross profit.
Both would need checking against the figures in the case before being stated as certain.
Question 3. Shop A reports a “margin” of 28% and Shop B reports 11%. Shop A’s figure is gross profit ÷ sales and Shop B’s is net profit ÷ sales. Explain why the comparison is unfair.
Answer
The formulas differ. A gross margin is always higher than a net margin for the same business, because net profit also subtracts expenses.
To compare fairly, calculate both shops’ gross margins, or both shops’ net margins, from their raw figures.
Question 4. Cafe C reports a net margin of 18% for December. Cafe D reports a net margin of 12% for the whole year. Explain what you would check before saying Cafe C is better.
Answer
The periods differ. December may include holidays and higher sales, so it is not a fair match for a full year.
I would ask for Cafe C’s margin for the full year, or Cafe D’s margin for December, so that the periods match.
Question 5. A fictional tailor reports a profit of RM10 000 but a fall in the bank balance from RM15 000 to RM6 000. Suggest one reason and one record to request.
Answer
One reason: customers may owe money for work already counted as sales, so profit is reported before cash arrives. Another is that the tailor paid cash for a new machine.
Request a record of cash received and paid, and a list of amounts customers owe. They would show whether profit has turned into cash.
Question 6. A shop’s net profit rose from RM8 000 in June to RM14 000 in July. The owner says efficiency has improved. Write a qualified comment.
Answer
Profit rose by RM6 000, but July may include a holiday or a one-off sale, so the rise may not come from efficiency.
A qualified comment: “The figures suggest July was stronger, but one month is not enough to show better efficiency. Comparing with July last year, and with August, would help confirm it.”
If you got these wrong
- Questions 1 and 2: read higher sales, lower profit.
- Questions 3 and 4: read fair ratio comparisons.
- Question 5: read which extra statement would help.
- Question 6: read limits of one-period comparisons.
The timed original practice session builder lets you repeat the set under time. For a teacher to work through your answers, see online one-to-one Business tuition.