If a venture's revenue is increasing but its expenses are increasing faster, what is the most correct conclusion?
Answer and explanation
Correct answer: Profit is under pressure
Profit is broadly determined by revenue minus expenses. Therefore, revenue growth alone does not prove improved profitability. If expenses rise faster than revenue, the difference between them becomes smaller, so profit may decline or turn into a loss. The entrepreneur should analyse the causes and control costs or improve revenue quality; stopping sales immediately or claiming certain success is not justified.
Frequently asked questions
What is the correct answer to this question?
Profit is under pressure
Why is this the correct answer?
Profit is broadly determined by revenue minus expenses. Therefore, revenue growth alone does not prove improved profitability. If expenses rise faster than revenue, the difference between them becomes smaller, so profit may decline or turn into a loss. The entrepreneur should analyse the causes and control costs or improve revenue quality; stopping sales immediately or claiming certain success is not justified.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Concept, nature and importance of business finance.
