Question

1. The Second Quarter Report of a company gives following information about segment performance.

Segment Sales

`

Net Profit

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A 5,00,000 20,000

B 15,00,000 80,000

C 8,00,000 30,000

Using Ratio Analysis, comment on the following:

(i)Which is the best segment? (ii) Which segment should be discarded?
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Answer 1

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Answer 2

Answer:

The best segment is Segment B.

Segment C should be discarded.

Explanation:

Given,

Segment               Net profit            segment sales

A                              5,00,000            20,0000

B                              15,00,000           80,0000

C                              8,00,000             30,000

To find

(1)The best segment.

(2) Which segment should be discarded.

Step 1

Net profit ratio(%) $=\frac{\text { Net Proft }}{\text { RevenueFrom Operations }} \times 100$

Net profit ratio of Segmnet A is,

$\frac{20,000}{5,00,000} \times 100=4$

Net profit ratio of Segment B is,

$\frac{80.000}{15.00 .000} X 100=5.33$

Net profit ratio of Segment C is,

$\frac{30,000}{8,00,000} \times 100=3,75$

(1) After examining the Net Profit Ratio, it exists indicated that Segment B's performance is best because its Net Profit Ratio stands most increased, i.e., Highest Profitability.

(2) Segment C should be discarded as its Net Profit Percentage stands lowest, i.e, Lowest Profitability.