Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Operating Margins

fi-le.net

Post reply on HN
Print view View original

111–120 of 130 posts

Re: Operating Margins

#111

Post by ghiculescu »

AnthonyMouse wrote: post #110
zackmorris wrote: post #73

This is maybe the first dataset I've seen that clearly illustrates how margin (profit) is inversely correlated with value to humanity. Other than Ports, the top 7 highest-margin industries (stock/crypto exchanges, stock exchanges, banks, toll road operators, financial services and asset management) are in financialization and rent-seeking, basically acting as middlemen that use other people's money to extract wealth.…

> Meanwhile the bottom 7 lowest-margin industries other than LiDAR and aircraft leasing (CRISPR, gene therapy, hydrogen fuel cell, genomics and mRNA therapeutics) arguably have some of the greatest potential to improve quality of life and help the planet. You're missing how the calculation works. Suppose you work in a lab doing genomics etc. You get paid, say, $100,000/year, and you require some equipment which costs…

This is true. But there’s another side to it too, which is that if the industry was more profitable it would (probably) attract more investment, specifically in the form of new companies.

Re: Operating Margins

#112

Post by AnthonyMouse »

ghiculescu wrote: post #111
AnthonyMouse wrote: post #110

Earlier quoted context omitted.

> Meanwhile the bottom 7 lowest-margin industries other than LiDAR and aircraft leasing (CRISPR, gene therapy, hydrogen fuel cell, genomics and mRNA therapeutics) arguably have some of the greatest potential to improve quality of life and help the planet. You're missing how the calculation works. Suppose you work in a lab doing genomics etc. You get paid, say, $100,000/year, and you require some equipment which costs…

This is true. But there’s another side to it too, which is that if the industry was more profitable it would (probably) attract more investment, specifically in the form of new companies.

That depends what the startup costs look like. If the barriers to entry are low then you don't need a lot of investment to enter the market -- which is one of the things that causes margins to be lower, because otherwise people would keep doing it until the returns fell below the normal market rate of return.

The industries with excessive margins are the ones where the incumbents make it prohibitively expensive for anyone to invest in those industries by entering them as a new business, as opposed to buying the stock of the incumbents. Which is one of the risks to their investors -- their stock prices are thereby inflated and they're running the risk both that voters will never get mad enough to actually push through regulatory reform and that the huge market incentive to find a way to disrupt them will never actually find a way do it.

Re: Operating Margins

#113

Post by piekvorst »

James_K wrote: post #108
takinola wrote: post #101

Earlier quoted context omitted.

The Mafia makes (made?) a ton of profit but are a net negative on society. The better heuristic may be to consider what would be lost if the industry did not exist. Anything beyond subsistence agriculture would probably be impossible without financialization. There's a reason you had banks even in the middle ages when the average person was poor.

>Anything beyond subsistence agriculture would probably be impossible without financialization. This is patently not true. The USSR had no financial markets and engaged in the production high value goods. Whether it did so more efficiently than its capitalist competition is another matter, and I believe the answer is likely no, but it clearly did more than subsistence farming.

That’s the point. They could initiate any massive production but it wasn’t maintainable at the scale they intended.

Re: Operating Margins

#114

Post by ghiculescu »

AnthonyMouse wrote: post #112
ghiculescu wrote: post #111

Earlier quoted context omitted.

This is true. But there’s another side to it too, which is that if the industry was more profitable it would (probably) attract more investment, specifically in the form of new companies.

That depends what the startup costs look like. If the barriers to entry are low then you don't need a lot of investment to enter the market -- which is one of the things that causes margins to be lower, because otherwise people would keep doing it until the returns fell below the normal market rate of return. The industries with excessive margins are the ones where the incumbents make it prohibitively expensive for a…

This is true. Banking is a great example of this.

Re: Operating Margins

#115

Post by mlrtime »

James_K wrote: post #108
takinola wrote: post #101

Earlier quoted context omitted.

The Mafia makes (made?) a ton of profit but are a net negative on society. The better heuristic may be to consider what would be lost if the industry did not exist. Anything beyond subsistence agriculture would probably be impossible without financialization. There's a reason you had banks even in the middle ages when the average person was poor.

>Anything beyond subsistence agriculture would probably be impossible without financialization. This is patently not true. The USSR had no financial markets and engaged in the production high value goods. Whether it did so more efficiently than its capitalist competition is another matter, and I believe the answer is likely no, but it clearly did more than subsistence farming.

It's not a comparison or another matter. It was a disaster and if it didn't fail the way it did, it would have through famine.

Re: Operating Margins

#116

Post by James_K »

mlrtime wrote: post #115
James_K wrote: post #108

Earlier quoted context omitted.

>Anything beyond subsistence agriculture would probably be impossible without financialization. This is patently not true. The USSR had no financial markets and engaged in the production high value goods. Whether it did so more efficiently than its capitalist competition is another matter, and I believe the answer is likely no, but it clearly did more than subsistence farming.

It's not a comparison or another matter. It was a disaster and if it didn't fail the way it did, it would have through famine.

This assessment is not based in historical reality. The last famine in the Soviet Union ended in 1947, more than 40 years before its dissolution, and with World War 2 being a major contributing factor.

The broader economic situation of the USSR is a very different question to whether or not they were able to progress beyond subsistence farming. One is a relatively nuanced topic, the other is a question that can be answered trivially by someone with the most basic historical knowledge, or even knowledge of modern Russia which clearly has not developed from subsistence farming to a developed economy in the time between 1991 and today.

Re: Operating Margins

#117

Post by cies »

christophilus wrote: post #42
arethuza wrote: post #30

Earlier quoted context omitted.

I think "income" is the standard accounting term in the US - in the UK the equivalent is "profit" (e.g. "P/L" vs "income statements").

I thought revenue was the standard accounting term in the US. I think of income as what I get to keep / freely reinvest, and revenue as a number that contains all kinds of hidden liabilities such as taxes, cost of sales, etc. That said, I’m (obviously) not an accountant.

When I look at it as a private person I think of income as the my personal revenue: from there I have lots of costs and tax to pay.

What I end up with is disposable income which I can keep/invest.

Re: Operating Margins

#118

Post by versteegen »

KK7NIL wrote: post #109
versteegen wrote: post #105

Earlier quoted context omitted.

Obviously the financial sector provide a lot of value, but they also extract a LOT of value and probably even worse employ a LOT of the smartest people (I recall the rebalancing of Iceland's economy after its banks failed), and couldn't we get nearly the same benefits with far less of the global economy being dedicated to financial services and trading (which neither I nor it seems the OECD categorise under "services…

You imply in your argument that finance mainly makes money from HFT("it's hard to me to see how market trading activity that provides a price for equities to the second") but this is simply not true, HFT and quants make up a very small portion of financial staff or profits. My understanding is that the majority of big finance's income is from private equity or debt deals (pairing companies who need money with investo…

No I didn't mean to draw attention to HFTs specifically, I understand they aren't big. I said 'second' instead of 'subsecond' because humans are also capable of reacting within seconds. But you are right that all those day traders losing money even things out and I was concentrating on the wrong thing. Investing and trading on longer time scales is certainly profitable.

Re: Operating Margins

#119

Post by Swenrekcah »

takinola wrote: post #101
Swenrekcah wrote: post #97

Earlier quoted context omitted.

These entities facilitate value creation yes, but they do not create much value and certainly not in proportion to the profits they extract. I have met people who sincerely seem to believe that if an entity makes money then it must be societally useful because otherwise the market would not reward them with profits. This seems to me like a self-help belief for people in these lucrative but ultimately not very meaning…

The Mafia makes (made?) a ton of profit but are a net negative on society. The better heuristic may be to consider what would be lost if the industry did not exist. Anything beyond subsistence agriculture would probably be impossible without financialization. There's a reason you had banks even in the middle ages when the average person was poor.

I agree that banks and many financial instruments are valuable and do facilitate value creation in the world. But that is the extent of it, they facilitate others to create value but do not make any on their own. They are however very well positioned to extract the profit from other industries and that is why the financial world can be so lucrative.

Also, even if some financialization is beneficial that does not mean all of it is. Too much can be very harmful.

Re: Operating Margins

#120

Post by cs702 »

itake wrote: post #95
jimnotgym wrote: post #69

Earlier quoted context omitted.

I'll summarise the thinking for you. If you got $1m in profit that sounds great. But if you had to invest $1bn to get it, that sounds less good, because you could have made more by putting the money in the bank at a much lower risk. Profit only makes sense when considered against the amount of capital required.

Isnt thay accounted for in the revenue - profit equation? The cost of capital is expressed in their balance sheet as expenses or depreciation. Pay back loans, investors, etc are all considered when calculating profit.

The amount of capital tied up in fixed assets is only one component of the capital required. Many other short-term and long-term assets can be components. Every business is different.

For example, a consulting firm may have almost no fixed assets, but let's say its customers are mostly large corps that take 90-120 days to pay invoices. When the firm gets hired for a new project it must cover its expenses for 90-120 days until it gets paid. As a going concern, the firm requires capital equal to 90-120 days of revenues to finance its accounts receivable. If the firm's revenues grow from, say, $100M/month to $120M/month, all else remaining the same, the firm will require an additional $60M to $80M in capital = ($120M/month - $100M/month) / 30 days/month * 90 to 120 days to collect.

Post reply on HN