Profits are simply not a good yardstick for comparing companies with large intangible assets. The least helpful profit indicators are Return on Equity or Return on Assets. Profit Margin Profit margin is a key indicator that describes the profit-generating capacity of the flow of revenue. Profit margin is an important indicator of how attractive it may be to invest money in a knowledge company, but it does not tell much about the actual efficiency of its employees. Nevertheless, profit margin is generally a better measure of efficiency than return on equity or investment, for example, which is totally irrelevant in companies where financial capital plays an insignificant part.
Profit margins vary a great deal from one industry to another.
Where profit margin expresses profit as a percentage of turnover, you must try to determine the composition of the revenues, for they may include varying proportions of commissions, expenses, hardware sales, etc. A better way of expressing profit margin is therefore to use the ratio of profit to value added. Although often used as synonyms, efficiency and effectiveness measure different things. Efficiency measures of show how well an organization is using its capacity, regardless of what it produces. This measures how much time consultants are paid for.