Profit margin and turn over ratios vary from one another what industry characteristic account for these variations?

Answer 1

Profit margin and turn over ratios vary from one industry to another The above said statement is true. Profit margin A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control. Imagine a company has a net income of $10 million from sales of $100 million, giving it a profit margin of 10% ($10 million/$100 million). If in the next year net income rose to $15 million on sales of $200 million, its profit margin would fall to 7.5%. So while the company increased its net income, it has done so with diminishing profit margins. Turn over ratio A measure of the number of times a company's inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly. In the case of mutual funds, the percentage of a fund's assets that have changed over the course of a given time period, usually a year. Turnover ratio for a mutual fund is calculated by dividing the average assets during the period by the lesser of the value of purchases and the value of sales during the same period. Mutual funds with higher turnover ratios tend to have higher expenses.

Profit margin and Turn over ratios vary depending on the Company's Policy strategies and the Technology they are using. For example in Automobile sectors, the Profit margin and turn over ratios depends on the output, yield of the product they are manufacturing. This output & yield requires highly skilled professionals & technicians. The company is offering some highly salaried technicians or professionals. In this case, the high output results in high profit and the highly salaried persons with high technology results in low turn over ratios. In many of the small scale and medium scale industry, they usually prefer to have low salaried employees with the same skills getting the same output and yield with less technology. In case of IT fields, the Man power turn over ratio plays a major role in determining the companies Profit margin and Turnover ratios. In most of the IT companies Man power turn over ratio is very high compared to the other industries. This is because, they are focussing on the Project based Man power. They had to offer high salary for the experienced candidates even if the project gives them a low profit margin. Instead, they planned to have a fresher or a trainee to complete the project with low salary. This increases the profit margin and the turn over ratio but they are facing high Man power turn over ratio.