LIKE ROE and ROA, calculating a company's margins is a way of getting at management efficiency. But instead of measuring how much managers earn from assets or capital employed, this ratio measures how much a company squeezes from its total revenue (sales).

Sounds a lot like earnings, right? Well, margins are really just earnings expressed as a ratio a percentage of sales. The advantage is that a percentage can be used to compare the profitability of different companies, while an absolute number cannot. An example should help. Company ABC has net income of $1.3 billion on sales of about $76 billion. Rival XYZ, meanwhile, earned $14.3 billion on sales of $405 billion for its fiscal year.

While comparing $1.3 billion for ABC with 11 times that amount for XYZ would tell you that the latter was certainly earning more, it wouldn't shed any light on which company was more efficient. After all, XYZ is simply the bigger company. But if you divide the earnings by the sales, you'll see that XYZ was returning 3.5% on sales, while ABC was returning just 1.7%.

see Price/Cash Flow. What's the difference? As you move down the statement, different types of expenses are factored in. The various margin calculations let you refine what you're looking at.

* Gross margins show what a company earns after all the costs of producing what it sells are factored in. That leaves out a lot marketing expenses, administrative costs, taxes and so on but it tells you how profitable the basic business is.

* Operating margins figure in those selling and administrative costs, which for most companies are a large and important part of doing business. But they come before interest expenses on debt and the noncash cost of depreciation on equipment. The earnings number used in this ratio is sometimes called cash flow or earnings before interest, taxes, depreciation and amortization (Ebitda). It measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it's harder to manipulate than net earnings.

* Pretax margins take into account all noncash depreciation on equipment and buildings, as well as the cost of financing debt. But they come before taxes, and they don't include one-time (so called "extraordinary") expenses like the cost of shutting a factory or writing off some other investment.

* Net margins measure the bottom line profitability after all expenses. This is what shareholders collect (theoretically) and so closely watch.

Margins are particularly helpful, since they can be used both to compare profitability among many companies and to look for financial trouble at a single outfit. Viewing how a company's margins grow or shrink over time can tell you a lot about how its fortunes are changing.

In 2008, for instance, JP Morgan s net margins remained in positive territory while some of its major competitors saw net margins down well over 15%. What does that tell you? JP Morgan had taken measures to protect itself from the financial crises that escalated in the fall of 2008. In the previous year, the firm stepped out of the business of securitizing subprime mortgages when it was all the rage. Rival Citigroup, in contrast, saw net margins down by about 30% in 2008. Between the start of 2008 and each stocks lows in the first quarter of 2009, JP Morgan s shares declined 61%, while Citigroup s plunged 96%. By May 2010, JP Morgan shares had fully recovered; Citigroup was still down by 85%.