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Operating Margins

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Re: Operating Margins

#41

Post by a5seo »

alexpotato wrote: post #28

This article is very timely as I was just thinking about margins given that I run a couple small websites that use Amazon Affiliate marketing. The margin on most items is 4% (some lower, some higher e.g. luxury items are 10%). 4% is not terrible in and of itself. But then you factor in: - advertising costs - conversion rates on clicks from the above - taxes and you get a real appreciation for how hard it must be to r…

> organic marketing etc but then you are just trading time for dollars.

But the alternative, trading dollars for dollars, is essentially just arbitrage, which tends to disappear from competition. Organic marketing is the only sustainable source of alpha I’ve found in affiliate marketing.

Re: Operating Margins

#42

Post by christophilus »

arethuza wrote: post #30
sokoloff wrote: post #18

Earlier quoted context omitted.

That is the standard meaning of that term in business accounting. When you or I work for a salary, we think of income as all the money coming in, but that's because there are no allowable expenses that we get to deduct against that income, so our "revenue as employees" is all "income".

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.

Re: Operating Margins

#43

Post by PopAlongKid »

jddj wrote: post #40
JCM9 wrote: post #24

Good article although especially in tech it’s not so simple. Thanks to games with depreciation and other financial engineering a company may look “profitable” but still be quite unhealthy or at risk. One generally needs to look at “profit” in the context of cash flow. I.e. a company could be “profitable” but also basically broke at the same time with no cash to pay people or suppliers.

It skews the other way just as often in my experience. That large clump at 10% has some wildly profitable businesses in it.

The comment you are responding to was "profitable but no cash flow" (due to non-cash deductions). I'm not clear what you mean by "the other way".

Re: Operating Margins

#44

Post by cs702 »

This ignores the capital intensity of different businesses, and the rate of return on that invested capital, which is tied up in the business.[a]

--

[a] Warren Buffett has written and spoken extensively about return on invested capital for more than six decades.

Re: Operating Margins

#46

Post by infecto »

Gross margin along with ebitda are great ways to do quick views on a company from an investor standpoint. You don’t care about tax, interest depreciation because those things can easily change, you care about the core business. Gross margins are high but ebitda margins are low? Then you know where to look in the finances to ask the first question of what is happening in the middle. If gross margins are low, probably a non starter unless it’s a non commodity product where you can raise price.

Re: Operating Margins

#47

Post by baxtr »

cs702 wrote: post #44

This ignores the capital intensity of different businesses, and the rate of return on that invested capital , which is tied up in the business.[a] -- [a] Warren Buffett has written and spoken extensively about return on invested capital for more than six decades.

Do you mind sharing a link of your linking for (a)? Thank you

Re: Operating Margins

#48

Post by lbotos »

akshayrajp wrote: post #45

Can I just say that your blog's design is so beautiful and readable? Do you mind sharing how you built it?

right click -> inspect

HTML looks pretty handwritten (lack of crazy css classes and simple structure)

https://fi-le.net/css/tufte.css">

They are using tufte.css https://edwardtufte.github.io/tufte-css/

Re: Operating Margins

#50

Post by telesilla »

kqr wrote: post #9

> Divide a company's income by its revenue If I'm a person who believes income is the same thing as revenue, how would you explain this division to me in a way I'd understand? Or does "income" in this case mean "profit"?

You need to deduct Cost Of Goods and Services, or COGS, from revenue in order to determine income. Then you have other things like taxes and depreciation, then you get profit.
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