Let's stop talking about low margins - we're missing the point

By Ian Heptinstall2019-01-14T12:35:00

Contractors and others highlight profit margin as an indicator of corporate performance when what we should really be talking about is a firm’s return on capital

A profit margin of 0.5% is terrible. Or so people are oft-quoted as saying. But saying something doesn’t make it so.

If you are paid £50,000 each year by your employer and your bank only pays you £100 interest for lodging your money with them you don’t complain about the pitiful 0.2% rate. You understand you don’t earn interest simply by cycling cash through your current account.

Exactly the same applies in business – you don’t have the right to take a fixed slice out of every pound that passes through the till.

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