The situation
A food maker reports ₹60 lakh sales, ₹36 lakh cost of sales, ₹12 lakh operating costs, ₹3 lakh interest and ₹2 lakh income tax.
Your task
Bridge sales to net income and find operating margin.
Reveal step-by-step solution
Set up the problem
Gross profit = ₹60 − ₹36 = ₹24 lakh.
Work through the numbers
Operating profit = ₹24 − ₹12 = ₹12 lakh. Operating margin = ₹12 ÷ ₹60 = 20%.
Interpret the result
Pre-tax profit is ₹9 lakh and net income is ₹7 lakh. Compare operations using the 20% margin before examining financing and tax.
What to remember
Move from revenue to gross profit, operating profit, pre-tax profit and net income in order.