Profit Margins (Returns on Sales)

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  A company in a high margin industry will focus on increased margins instead of sales to grow the business. The company will not compete on price, but rely on high margins or profit on each sale.

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  Based on the profit margins (returns on sales), which division is superior? Attached is a full featured MS Excel spreadsheet containing calculations for and insight into the Digital Delights Profit Margin Determination Problem.

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  Another indicator which one should see is return on equity. This indicates the returns earned by the shareholders.

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  So, even though they arrive at the net margins in very different ways, they both have about the same return on sales. I might add that neither is very impressive in terms of return on sales (less than 2%).