Chapter 3. Where Do You Make the Money?

Now that you’ve defined your business in a new way, by its real business segments, the most important thing to know is which of these segments generates most of your profits, both in terms of absolute amounts of money and in terms of profitability (measured by return on sales (ROS), or, preferably, return on capital employed (ROCE), sometimes also called return on investment, or ROI).

It may be that your accounting system already provides this information, or can be easily tweaked to do so. If so, great. It’s more likely, however, that the profits for the segments you have just defined are not readily available. One reason could be that you’ve not been tracking your performance according to this new definition. ...

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