What is a sign of effective management regarding Profit Margin?

Effective management of profit margin focuses on how much of each dollar of sales contributes to profit after covering expenses. Minimizing expenses per dollar of sale directly impacts the profit margin by ensuring that a greater portion of revenues becomes profit. When management successfully reduces expenses in relation to sales, it improves the profitability of the business, signaling effective control over costs and operational efficiency.

While increasing sales revenue and reducing the cost of goods sold can also positively affect profit margin, the essence of profit margin management lies primarily in controlling expenses relative to sales. Maximizing inventory turnover is important for liquidity and efficient stock management but does not directly target profit margin improvement in the same way that minimizing expenses does. Therefore, minimizing expenses per dollar of sale is a clear indicator of effective management focused on enhancing profitability.