Capital Turnover vs. Profit Margins

Abstract

THESE COMMENTS deal with only one aspect of company analysis methods and that is profit margins. I believe that a deal of profit margin analysis is not in proper focus and that there is one often overlooked step in studying profit margins which can readily, and should customarily, accompany any critique of profit margins. Profit margin for this purpose is taken as the sum of net income and bond interest as a percentage of sales, that is to say, the ratio to sales of profits applicable to the capital structure. A big percentage profit margin is almost always referred to as good or high and a small percentage profit margin as poor, bad or low. Usually a bigger profit margin is referred to as better than a smaller one. The following Table 1 ranks twelve industry leaders in order of their profit margins in 1964.