From a financial perspective, what would be the problem with just using net profit for each gym as a basis for comparing their performance?

(A) Net profit per gym may be significantly skewed by the relative size of each gym, making it look as if your larger gyms are performing better even though this may not be the case

(B) Net profit does not tell you what profitability is as a percentage of revenue, which would be a better indicator of the relative financial performance of each gym

(C) Net profit as a number does not give you any indication of the cost and revenue drivers that lie behind it, which makes it difficult to control and influence performance

(D) All of the above

Explanation

All the above mentioned points are the main problems of using net profit for each gym as a basis for comparing their performance. Net profit is relative to the size of gyms and bigger gyms will get more net profit but it doesn’t mean that smaller gyms aren’t turning a good net profit based on their capacity.

The relative financial performance of each gym cannot be calculated based on the net profit because it doesn’t indicate the percentage of revenue that is your profit.

Net profit is basically a number on a paper that doesn’t indicate anything about the main drivers behind the costs and revenue of the gyms.

Conclusion

This question is a part of the Weekly Quiz 4 section from the Organisational design: Know your organisation course. You can check out all the quiz answers to this exam in our Organisational design: Know your organisation Quiz Answers page.

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