Question

Last year a company made a net profit of $20,000 on sales of $1,000,000. This year they made a net profit of $40,000. When talking to the shareholders, they claimed that their profit increased by 100%, and asked for a bonus for doing so well. When talking to the union about a possible wage raise, they claimed that their profit only increased by 2%, which hasn't even kept up with inflation. How did they determine these figures? Which one do you think is correct?

Answer 1

in terms of net profit, they went from 20,000 to 40,000
--> (40,000-20,000)/20,000 = 1 = 100%

in terms of profit as sales%, they went from 2% to 4%
20,000/1,000,000 = .02 = 2%
40,000/1,000,000 = .04 = 4%
--> this is an increase of only 2% but it is misleading to say profit only increased by 2%