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Question
Assertion (A): Higher the Gross Profit Ratio, higher will be the profitability of a company.
Reason (R): Profitability Ratio includes not only Gross Profit Ratio and Net Profit Ratio but also includes all ratios assessing profitability.
In the context of the above two statements, which option is correct?
Options
Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).
Assertion (A) is correct, and Reason (R) is incorrect.
Assertion (A) is not correct, but Reason (R) is correct.
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Solution
Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
Explanation:
Assertion (A) is correct because a higher Gross Profit Ratio directly means better manufacturing margin and higher profitability. Reason (R) is also correct because the profitability group includes multiple ratios like Gross Profit, Net Profit, and Operating Profit. However, the reason does not explain the assertion. Listing other ratios in the same category does not explain why a higher gross margin makes a company more profitable.
