Issue link: https://www.e-digitaleditions.com/i/540646
July/August 2015 25 profit before taxes (PBT) and return on assets (ROA): According to the PROFIT report, the typical FEDA member has a PBT of 2 percent of sales and an ROA of 6 percent. Firms in the 40/40 club would have a PBT of 6.5 percent and an ROA of 17.4 percent. It is a striking improvement in performance. As stated before, being in the top 40 percent with regard to either gross margin or expenses does not represent dramati- cally superior performance. It simply reflects being a little bit better than the norm. The challenge is being better on both factors at the same time. Management needs to develop plans to produce somewhat better than typical performance. To start the process, the firm must first know where it stands in the industry. This necessi- tates a close review of the PROFIT report on an annual basis. It provides percentile rankings for both margin and expenses for each participating firm. Moving Forward Simply put, gross margin and expenses are the name of the game in improving profitability. However, margin and expens- es cannot be viewed as an either/or proposition. They must be managed simultaneously. About the Author Dr. Albert D. Bates is founder and president of Profit Planning Group. His recent book, The Real Profit Drivers, is the basis for this report. It is a book every C-Level manager should read and is available in trade-paper format from Amazon. Gross Oper. Improvement In Margin Exp. PBT (%) ROA (%) Top 40% Top 50% 163.5 128.6 Top 50% Top 40% 154.7 151.5 Top 40% Top 40% 226.3 189.7