How could two companies with similar gross profit figures en

How could two companies with similar gross profit figures end up with dramatically different net operating income?

Solution

Gross profit is the direct profit earn by the organization from the trading activities. Gross profit include the calculation of direct expenses and thus it is posible that the company can have similar gross profiy end up with dramamatically differnent net operating income. The main reason behind this is the amount of indirect expenses, for e.g the deprectiaion of one company may be higher than the other, rent expenses of the companies and office structure may be higher and thus impacting the similar profits of the company.

Net operating can also be analyzed by calculating the operating ratios an thus lower the income and higher the operating expense wulll ultimately drain the net operating income of the two companies with similar gross profit and every company has different indirect expense and the calculation will be dependent on the situation.