Question: A Real Increase in Profitability ? The table below highlights a firm that has dramatically increased its profitability in a few years. But they have

A Real Increase in Profitability ? The table

A Real Increase in Profitability ? The table below highlights a firm that has dramatically increased its profitability in a few years. But they have focused on a short-term, not long-term, basis and you need to determine what impact this may have. ACTIVITY/TASK Sales Costs Operating profit New product development Promotional expenditure Sales force commissions Total future investment Net profits Year 0 20m 5m 15m 2m 4m 2m 8m 7m Year 1 19.50m 4.75m 14.75m 1m 3m 1.75m 5.75m 9m Year 2 18.6m 4.6m 14m 0.5m 2.5m 1.5m 4.5m 9.5m Year 3 16m 4m 12m Om 1m im 2m 10m QUESTIONS 1. 2. Based on the bottom-line net profits figure only, how happy would the firm be with these results? Essentially, how has the firm been able to deliver these profit results? What concerns do you have for the firm? Do you see their profitability continuing to increase? What advice would you have for the management of this firm? 3. 4

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