Venture capitalists wants to have comprehensive and structured understanding of what is actually driving changes in a firm's operating income over…

Strategic Profitability Analysis - Operating Profit of a firm is affected by various components which are responsible for changes in the revenue and costs. Majorly there are three components – (i) Growth Component measures the change in the quantity of output sold. The growth component of the change in the operating income measures the increase/ decrease in revenue and in costs due to selling more/ less quantity units from the previous period.. (ii) Price Recovery Component of change in operating income measures the changes in the revenue and costs solely due to changes in prices. (iii) Productivity Component measures the change in the operating income due to changes in the product mix and/ or yield of inputs as compared with the last year. This component uses current year's prices of input to measure the changes in costs only.