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EnergyCo
Your client, EnergyCo, operates three segments: Generation, Transmission, and Retail Supply. The exhibit shows revenue and costs for 2024 and 2025.
What was primarily responsible for the decline in total profit from 2024 to 2025? Which segment(s) and was it due to revenue decline, cost increase, or both? Give a quick justification.
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📋 Solution:
EnergyCo
- Totals:
- 2024 profit = 16,000 − 11,800 = 4,200
- 2025 profit = 16,000 − 13,000 = 3,000
→ Profit down 1,200.
- Driver check:
- Revenue change = 0 (16,000 → 16,000)
- Cost change = +1,200 (11,800 → 13,000)
→ Decline is cost-driven.
- By segment (profit = revenue − cost):
- Generation: 2024 = 9,000 − 7,000 = 2,000; 2025 = 9,000 − 8,200 = 800 → −1,200 (cost surge, revenue flat).
- Transmission: 3,000 − 1,800 = 1,200 → 3,200 − 1,850 = 1,350 → +150.
- Retail Supply: 4,000 − 3,000 = 1,000 → 3,800 − 2,950 = 850 → −150.
Answer: The profit drop is entirely cost-driven in Generation (−1,200), partially offset by a small improvement in Transmission (+150) and a small decline in Retail Supply (−150).
