Question:medium
Directions for questions 84 and 85: Study the aggregate financial ratios of all registered Indian manufacturing companies in the table below to answer the questions that follow.
All figures are as % of net sales unless otherwise mentioned 2000 2001 2002 2003 2004 2005 PBDIT 13.1 11.7 12.3 13.3 14.4 14.7 PBDT 8.1 7.1 8 9.9 11.8 12.7 PBIT 9.4 8.4 8.7 9.9 11 11.6 PAT 3.2 2.8 2.7 4.4 6 6.9 Raw Material expense 41 40.6 43.1 45.5 45.7 47.1 Salaries and wages 5.9 5.7 5.6 5.3 4.9 4.4 Interest payments 4.6 4.3 4 3.1 2.3 1.7 Operating profit 5.2 4.2 4.9 6.7 8 8.7 Net sales (% Growth Over Previous Year) 18.4 19.3 2.6 15.7 15.2 19.9
What is the annual growth rate in aggregate PAT of the Indian manufacturing companies in the financial year 2005 as compared to that in the financial year 2004?
Directions for questions 84 and 85: Study the aggregate financial ratios of all registered Indian manufacturing companies in the table below to answer the questions that follow.
| All figures are as % of net sales unless otherwise mentioned | ||||||
|---|---|---|---|---|---|---|
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
| PBDIT | 13.1 | 11.7 | 12.3 | 13.3 | 14.4 | 14.7 |
| PBDT | 8.1 | 7.1 | 8 | 9.9 | 11.8 | 12.7 |
| PBIT | 9.4 | 8.4 | 8.7 | 9.9 | 11 | 11.6 |
| PAT | 3.2 | 2.8 | 2.7 | 4.4 | 6 | 6.9 |
| Raw Material expense | 41 | 40.6 | 43.1 | 45.5 | 45.7 | 47.1 |
| Salaries and wages | 5.9 | 5.7 | 5.6 | 5.3 | 4.9 | 4.4 |
| Interest payments | 4.6 | 4.3 | 4 | 3.1 | 2.3 | 1.7 |
| Operating profit | 5.2 | 4.2 | 4.9 | 6.7 | 8 | 8.7 |
| Net sales (% Growth Over Previous Year) | 18.4 | 19.3 | 2.6 | 15.7 | 15.2 | 19.9 |
What is the annual growth rate in aggregate PAT of the Indian manufacturing companies in the financial year 2005 as compared to that in the financial year 2004?
Show Hint
PAT is given as a percentage of net sales, not a rupee value. First scale up 2004's PAT ratio by the net sales growth for 2005, then compare it with the 2005 PAT ratio.
Updated On: Jul 13, 2026
- 15.0 per cent
- 5.7 per cent
- 88.6 per cent
- 37.8 per cent
Show Solution
The Correct Option is D
Solution and Explanation
PAT here is written as a percentage of net sales, so before comparing two years we must first turn each year's PAT ratio into an actual rupee value using an index for net sales. Take the 2004 aggregate net sales as 100 units. Then 2004's PAT is $100 \times 6.0\% = 6$ units.
The table tells us net sales grew by 19.9 per cent in 2005, so 2005's net sales index is $100 \times 1.199 = 119.9$ units. Applying the 2005 PAT ratio of 6.9 per cent to this: 2005's PAT is $119.9 \times 6.9\% = 8.2731$ units.
Now find the percentage change from 6 units to 8.2731 units:
\[ \text{Growth} = \frac{8.2731 - 6}{6} \times 100 = \frac{2.2731}{6} \times 100 = 37.885\% \]This rounds to 37.8 per cent, so option 4 is correct.
Let's summarize:
- A ratio given as "% of net sales" is not the same as an absolute value; you must multiply by net sales to compare years correctly.
- Using net sales growth of 19.9% together with the PAT ratio jump from 6.0% to 6.9% gives the true PAT growth of about 37.9%, not the smaller number you'd get by comparing the ratios alone.
So the aggregate PAT grew by about 37.8 per cent in 2005 versus 2004.
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