This relationship causes the ROA to be driven by both the operating and capital efficiency of the business. We are finding wide variation in both capital and operating efficiencies on DBAP dairies. Some dairies have high operating efficiency but low capital efficiency keeps profitability from being higher. For other dairies the reverse is true with a wide range in between. The dairies were sorted into three groups based on the rate of return on assets.
Several things are evident by examining the differences between profitability groups.
First, you should notice the difference in operating efficiency by looking at the operating profit margin. In other words, there was an 18-percentage point difference in operating efficiency between the high and low profitability groups. The reasons for the wide variation in operating efficiency were due to differences in both revenues and expenses. The middle ROA group fell between the high and low groups for both revenues and expenses. The other differences between profitability groups were due to differences in capital efficiency.