The situation
Last year revenue was ₹100 crore and operating profit ₹18 crore. This year revenue is ₹120 crore, variable costs ₹78 crore and fixed operating costs ₹24 crore.
Your task
Explain the operating margin movement.
Reveal step-by-step solution
Set up the problem
Current profit = ₹120 − ₹78 − ₹24 = ₹18 crore. Current margin = 18 ÷ 120 = 15%.
Work through the numbers
At the prior 18% margin, current revenue would produce ₹21.6 crore. The gap is ₹3.6 crore.
Interpret the result
Profit held flat despite revenue growth. Bridge product mix, price and input costs to explain the 3 percentage point margin decline.
What to remember
Separate profit in currency from margin in percentage points and define the comparison base.