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I have a question where in Year 1
Sales: 209,320
Cost of sales: (109,298)
operating expenses:(67,546)
PBIT – 32,476Year 2
Sales: 222,896
Cost of sales: (117,825)
operating expenses:(71,358)
PBIT – 33,713Year 3
Sales: 237,595
Cost of sales: ((129,591)
operating expenses:(73,058)
PBIT -34,946The operating margin is decreasing in each year from:
Yr 1 – 15.5
Yr 2- 15.1
Yr 3 – 14.7I’m struggling as to why the OPM is decreasing since all sales, cos, op expenses and PBIT are increasing.
The profit margin is the profit as a % of the sales.
So in the first year it is 32476 / 209320 = 15.5%
If you check for the second and third years, you will find that the % profit is decreasing as per the answers you have written.
Thanks John,
But is the reason for operating profit margin declining because gross profit is also decreasing?
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