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QuestionsCategory: Business QuadrantQuestion on business model chapter
TENG FOOK SENG asked 3 years ago

Hi,
My question on profitability and volume. I can relate what is volume, like scalability and whether it is international business company. But how to measure profitability as high, medium or Low? By profit margin? If Yes what is the number that is considered high, medium or Low? I can think of peer comparison but then again some business industry profit margin by default is Low, the question in this case is how to confirm as such? What profit margin is term as high, medium or Low?
Thank you.
Regards
Fook Seng
 

1 Answers
Victor Chng answered 3 years ago

Hi Fook Seng,
 
Yes you can measure profitability by the margin. Single digit margin are usually consider low especially those that below 5%. Margin that are above 10% are consider high and anything above 20% is super high margin. This is just a general rule of thumb.
 
The more important thing is to compared industry specific with the peers as what you have mentioned. If the company is able to maintain high margin compare to their peers, that is a good sign.

Ang Henry replied 3 years ago

To add on to Victor’s answer;

It’ll be prudent to find out why the specific company is able to generate higher margins than their competitors and/or other competitive advantage(s), if not it might be a potential red flag ie; Potential fraud etc

Victor Chng replied 3 years ago

Thank you for sharing Henry :)