The answer -- and which of these you want to look at -- depends on the amount of capital per unit of sale. For example, supermarkets are always touting the claim that they make only 1% or 2% on sales. But what do they make on capital? Somewhere upwards of 15 or 20 or 25% or more? Other industries might have substantially more investment per unit of sales -- they would point in the opposite direction --- i. e. a low profit rate, while perhaps earning a high profit margin.
Gene Coyle "William S. Lear" wrote: > On Monday, December 10, 2001 at 16:15:35 (-0800) Michael Perelman writes: > >Jim is right. What is the cost per unit? Does it include the > >depreciation of durable plant and equipment? If so, the invested value of > >the durable plant and equipment would be in the denominator. > > > >Because economists and accountants have no realistic way of putting a > >value on durable equipment, profit ratios are often questionable. > > So, using profit ratios (profit *rate*, or profit *margin*) is not a > good way to view how competitive a market is? > > Bill
