Reading Graphs Pt2: Profit Margin, Cost Efficiency, Productivity, and YoY Growth

Daniel Newlands
Jan 30
3 min read

Updated: 6 days ago

The Efficiency Engine: How to Spot a Well-Run Business

In our last post, we looked at the "Core Four" (Revenue, Profit, etc.) to gauge the size and basic health of a company. Today, we are going deeper.

We are looking at the Efficiency Metrics. These charts reveal the quality of the management team and the internal culture of the business. Is this a lean, mean machine? or a bloated giant burning cash?

Here is how to interpret these four charts on the Reportly dashboard.

1. Profit Margin (%)

What is it? This percentage reveals how much of every £1 earned the company keeps as actual profit. If a company has a 5% profit margin, they retain 5p for every £1 of sales after paying all their bills.
How to read the chart
- The Baseline: Look for the "breakeven" line (0%). Crossing this line from negative to positive is the most critical milestone for any scale-up.
- Stability vs. Spikes: In the example chart, the line fluctuates wildly between -6% and +6%. This indicates a company that hasn't yet found a stable operational rhythm. A flat, positive line is the gold standard.
How to use this information
- For Job Seekers: This is your "Safety Buffer." High-margin businesses can survive mistakes or economic downturns without firing staff. Low-margin businesses live on a knife-edge.
- For Sales Teams: If you are selling a premium product, target high-margin companies. They have the spare cash to invest in quality tools.

2. Cost Efficiency (%)

What is it? This metric (often known as the Cost-to-Income Ratio) measures how much it costs the company to generate its revenue. It tracks operational discipline.
How to read the chart
- Lower is usually better: If the number is 90%, it costs the company 90p to earn £1. If the number is 50%, they only spend 50p to earn £1.
- The Trend: In the example chart, we see a spike to nearly 95% in 2022. This corresponds to a period of high costs or low efficiency. You want to see this line trending downwards over time.
How to use this information
- For Observers: This tells you how "lean" the company is.
- The Warning Sign: If this number is consistently rising, the company is suffering from "bloat"—hiring too many people or spending too much on overheads without getting a return. This often precedes a restructuring or layoff round.

3. Productivity (Revenue per Employee)

What is it? This divides total revenue by the number of staff. It tells you the average financial contribution of each employee. It is the ultimate measure of automation and workforce effectiveness.
How to read the chart
- The Climb: You want to see this rising. It means the company is scaling revenue faster than it is hiring people (which is the goal of any tech company).
- The Spike: Look at the massive jump in 2023/2024 on the chart. This suggests a massive increase in sales or a reduction in headcount (doing more with less).
How to use this information
- For Job Seekers: High productivity usually equates to higher salaries, as the company can afford to pay top talent. However, it can also indicate a high-pressure culture where you are expected to deliver significant output.
- For Investors: This is a key indicator of scalability. If productivity is flat, the business is "people-heavy" and hard to scale.

4. YoY Growth (%) (Year-on-Year)

What is it? This measures the speed of the company's expansion compared to the previous year. It tells you if the business is accelerating or stalling.
How to read the chart
- Above Zero: Any number above 0% means the company is bigger than it was last year.
- The Volatility: It is normal for startups to have wild swings (like the 80% growth spikes shown here). Mature companies tend to have lower, smoother growth lines (e.g., steady 5-10%).
- Negative Numbers: If the line drops below zero, the company is shrinking (revenue is lower than the year before).
How to use this information
- For Job Seekers: This helps you choose your adventure. High YoY growth (50%+) means rapid career progression, chaos, and excitement. Low but steady growth (5-10%) means stability and structure. Negative growth is a major red flag for job security.

Want to test your new skills? Check out our full example dashboards here.