Denver Dynamics has gross revenues of $2,000,000. Oakland Enterprises has gross
ID: 2417989 • Letter: D
Question
Denver Dynamics has gross revenues of $2,000,000. Oakland Enterprises has gross revenues of $2,500,000. Which of the following best compares the profitability of Denver and Oakland?
a.
More information is needed for a meaningful comparison.
b.
Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified.
c.
Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics.
d.
Oakland Enterprises is more profitable is it is a larger firm than Denver Dynamics.
e.
Oakland Enterprises is 25% more profitable than Denver Dynamics.
a.
More information is needed for a meaningful comparison.
b.
Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified.
c.
Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics.
d.
Oakland Enterprises is more profitable is it is a larger firm than Denver Dynamics.
e.
Oakland Enterprises is 25% more profitable than Denver Dynamics.
Explanation / Answer
Answer is option A. i.e More information is needed for a meaningful comparison.
Reasons:
1. If the profitability of two companies is need tobe compared, then look at Net profit/ Earnings available to shareholders as the case may be, of both companies. But, simply gross profit can't indicate that one company performance is better than other
2. Even Net profit can be intentionally make up. So, Analysis in respect of various ratios such as Gross profit ratio,
Net profit ratio, Operating profit ratio, Return on capital employed/ Return on investment, Return on Networth etc.
needs to be calculated and compared to determine, which of two companies is really performing Best.
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