Hello guys, really need help in solving this question.
Background:
- Parent co. with 2 overseas subsidiary
- Nature of the business: equipment manufacturer
- Profit margin for all 3 companies is low, about 3-5%
- 1 of the subsidiary is making a loss in the current year.
In this case, which benchmark should I select for the group's materiality? Profit before tax or revenue? With the subsidiary making a loss and the low profit margin, will revenue be a better benchmark? If yes then why? I can't really understand the concept that when the profit margin is low, it's better to select revenue as the materiality benchmark.