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    Question

    A company’s gross profit margin remains stable, but

    its net profit margin shows significant fluctuations year over year. The finance team wants to investigate the cause. Which of the following would most likely explain the change?
    A Inventory misstatement Correct Answer Incorrect Answer
    B Change in depreciation method Correct Answer Incorrect Answer
    C Variation in operating expenses and interest costs Correct Answer Incorrect Answer
    D Error in cash flow reporting Correct Answer Incorrect Answer
    E Change in dividend policy Correct Answer Incorrect Answer

    Solution

    Gross profit margin reflects core operations (sales – COGS). If gross margin is steady but net profit varies, the cause lies in operating expenses, financing costs, or non-operating income/loss.

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