Question

4 methods of improving margins and investment return

Answer 1

Margin is the gap of total revenues and total expenses. It is also called as profit.

It is required to calculate investment return, which is [(Profit / Average total assets) × 100].

Methods for improving of these are as below:

No1) Reduction of expenses: some sorts of reduction are in the hand of firm’s management – such as non-production expenses like rent, insurance, welfare, etc. These take huge part in the income statement and reduce the profit margin. If the firm able to reduce such costs, it can increase margin and return.

No.2) Efficiencies: a firm can increase the margin and return by increasing operational efficiency. Such efficiency indicates an increasing production with a minimum waste. Since bulk production is possible there, it absorbs fixed overhead cost into the greater number of units.

No.3) Brand awareness: it creates demand of product in the market. Establishing the brand value is the best way of improving sales or revenues, which ultimately increases profit and returns. The firm can increase the brand value by reaching out to customers through various ways, like through advertisement.

No.4) Punctuality: a firm should avoid penalty on tax, overdue interest of loan, etc. These are unnecessary expenses appeared in the income statement, which reduce profit margin. Therefore, the method of regularity is the way of cost minimization and profit maximization.