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How to solve this ? Worked Example 8 An analyst is evaluating the profitability of ABC Company over the recent 3 years period and collects
How to solve this ? Worked Example 8 An analyst is evaluating the profitability of ABC Company over the recent 3 years period and collects the following profitability ratios: 2004 2003 1949% 2.83% 0.44% 0.33% 2002 Gross Profit Margin Operating Profit Margin Pretax Margin Net Profit Margin 19.35% 35% 2.49% 3160 ABC 2003 annual report indicates that revenue declined in year 2003, Furthermore, management discussion of results in that report notes the following: G&A expenses of US$ 5.4 million remained virtually flat on the prior year level G&A expenses as a % of revenue were 3.9% in year 2003 and 36% in year 2002, reflecting the limited variability of these expenses. Slightly higher personnel expenses primanily caused by higher net periodic pension and post retirement benefit costs, resulted in a moderate increase of G&A expenses. a) Contrast gross profit margin and operating profit margin over 2002 to 2004. b) Explain the decline in operating profit margin in year 2003 c) Explain why the pretax margin might decrease to a greater extent than the operating profit margin in year 2003. Compare and contrast net profit margins and pretax margin over 2002 to 2004. d)
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