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Critical Thinking Hard 2 min

A company reports that its sales increased by 50% in one quarter. It also reports that its profit increased by only 5%. Does this prove that the company became less profitable per sale?

Hint
Profit and sales percentages alone do not necessarily determine profit margin.

Answer

No. The information is insufficient.

Explanation

Profit margin depends on profit divided by revenue or sales. If the figures refer to different bases, accounting periods or other factors, the two percentage changes alone do not establish the change in margin.

Step-by-Step Solution

Compare actual profit and revenue values.
Percentage growth alone does not establish the change in profit margin.
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