Doesn't total profitability increase after removing the 3 items?

Question

I'm confused regarding the new profitability after removing the 3 prep items, even though the new profit margin is 1323 USD, if you go back and calculate the new total revenue and new total profit, it actually increases for the restaurant.

Example: old revenue total: 4940 and old profit total: 3540 (profitability: 71%)

New revenue total (removing 3 prep items): 4130 and new profit total: 3378 (profitability is 81%)

The case concludes that removing these items will not help profitability... which is not the case

Answer 1

Hi there,

3378 is less than 3540. Therefore, this does not improve profitability.

It does improve profit margin, but not overall profitability (profitability = profits).

You're just getting mixed up with terminology here :)

https://www.google.com/search?q=profitability&rlz=1C1CHBF_en-GBAU880AU880&oq=profitability&aqs=chrome..69i57j0i433l2j0i131i433j0i433j69i60l3.1471j0j7&sourceid=chrome&ie=UTF-8

Answer 2

Hello!

Daniel, the author is in PrepL, hit him up and consider also doing a coaching session for in-depth analysis of the case.

Cheers,

Clara