3 ms·

>You'd need to increase profits, not revenue. I wonder if we're starting to talk past one another. I'm just a layperson here, but I believe I got the meaning o

by rskar 11y ago

>You'd need to increase profits, not revenue. I wonder if we're starting to talk past one another. I'm just a layperson here, but I believe I got the meaning of revenue (http://www.investopedia.com/terms/r/revenue.asp http://www.investopedia.com/terms/r/revenue.asp) and net income (http://www.investopedia.com/terms/n/netincome.asp http://www.investopedia.com/terms/n/netincome.asp) right. So, revenue is all the money coming in, and revenue per employee really is all money coming in divided by the number of employees. If more money is needed to cover a wage increase, one needs an increase in revenue. Apparently, profit is sometimes synonymous with net income, and sometimes it means what's left of net income after taxes and dividends are paid. In any case, it is not impossible for profit to stay about the same while revenue is increased; that all is dependent on where you're at on your supply-and-demand curve on whether sales are terribly affected by a price increase. E.g., remember when gasoline approached $3.50/gal (http://www.statista.com/statistics/204740/retail-price-of-gasoline-in-the-united-states-since-1990/); http://www.statista.com/statistics/204740/retail-price-of-ga... didn't effect sales by much (http://www.statista.com/statistics/189424/us-alternative-and-traditional-fuel-consumption-of-highway-vehicles-since-1992/ http://www.statista.com/statistics/189424/us-alternative-and...). I'm willing to bet that burgers and white socks will move about the same. >As I understand it deficits have been shrinking I get where you're coming from, in the past few years deficits have decreased, and considering the mess that revealed itself months before President Obama's inauguration, one would certainly hope dramatic decreases would come and soon. However, I've been around long enough (ok, alive in the 1970's) to remember when deficits began to be so on the minds of people generally and be a general concern. Check out https://www.whitehouse.gov/omb/budget/Historicals https://www.whitehouse.gov/omb/budget/Historicals, and http://mediamatters.org/research/2015/10/19/new-data-debunks-years-of-fox-news-paranoia-abo/206262 http://mediamatters.org/research/2015/10/19/new-data-debunks.... Aside from several good years in the Clinton administration, it's been mostly deficits at substantial or significant levels. Pick a reasonable window of time between now and 10 years or 20 years or 30 years ago, and fit a trend line. You'll find the trend is still highly suggestive of increasing deficits (no matter if Obamacare makes these future increases smaller, https://www.cbo.gov/publication/50252 https://www.cbo.gov/publication/50252 and https://www.cbo.gov/publication/49892 https://www.cbo.gov/publication/49892 and https://www.cbo.gov/sites/default/files/51118-2016-03-BudgetProjections.xlsx https://www.cbo.gov/sites/default/files/51118-2016-03-Budget...). >Regarding your "break even" idea Yep, it's just my conjecture. But your counterpoint conveniently side steps on just how the government produces the $7500 in your example. Raising taxes? Issuing more Treasury bonds? Perhaps you could elaborate on this?

ikeboy 11y ago
>I'm willing to bet that burgers and white socks will move about the same. If that's the case, then Walmart could double their profit now by raising prices. I doubt this. If you assume revenue goes up without an increase in costs, then yes, but there's little reason to assume that. Walmart carries millions of products, and to assume they can raise the price and not lose sales is wrong. > But your counterpoint conveniently side steps on just how the government produces the $7500 in your example. Raising taxes? I had in mind using taxes. I didn't discuss a shift in policy which requires a change in revenue, I was describing the end result. Government raises funds and spends it. T-bonds are just spending future tax money.
- rskar 11y ago
  >...then Walmart could double their profit now by raising prices. I doubt this. ... >If you assume revenue goes up without an increase in costs, then yes, but there's little reason to assume that. Well, let's review, and please check out my math below. I did some more googling and copy-pasted what I found. (copy-paste:) Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Hence revenue is an amount independent of costs. Two ways to raise revenue, by definition, is to raise prices or increase sales. (copy-paste:) Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business. Hence profit (and not revenue) is the amount that is dependent on costs. Note that net income is often considered the same as profit. Raising wages raises costs. Without a respective increase in revenue, profit is impacted. (copy-paste:) Profit margin represents the percentage of revenue that a company keeps as profit after accounting for fixed and variable costs. It is calculated by dividing net income by revenue. The profit margin is mainly used for internal comparisons, because acceptable profit margins vary between industries. For Walmart, quarterly profit margin is about 3.5% (https://ycharts.com/companies/MCD/profit_margin https://ycharts.com/companies/MCD/profit_margin). For McDonalds, about 19% (https://ycharts.com/companies/MCD/profit_margin https://ycharts.com/companies/MCD/profit_margin). So I was suggesting that increased labor costs could be balanced with increased revenue brought about by increased prices. For example, a 4% increase on a 10-pack of white socks that was $7.50 at Walmart is now $7.80. A 14% increase on a Big Mac that was $4.00 (http://www.fastfoodmenuprices.com/mcdonalds-prices/ http://www.fastfoodmenuprices.com/mcdonalds-prices/) is now $4.56. With some market research maybe we can figure out how many fewer socks and burgers get sold. But hey, at $4.56 a Big Mac it's still cheaper in the US than in Sweden and Norway (http://www.economist.com/content/big-mac-index http://www.economist.com/content/big-mac-index). An alternative to price increases is to accept a lower profit margin. Let M=Profit Margin, R=Revenue, C=Costs; hence M = (R - C)/R, straight from the definition of Profit Margin. We can show with some algebra that we can take R and C on a per-employee basis and M = (R - C)/R still works with per-employee numbers. Also, M = 1 - C/R. Via algebra, we can find the per-employee costs: C = R(1 - M). Let W be whatever increase in labor costs to be considered (per employee). Let C1 = C + W, the new cost from the increase in costs from labor. Let M1 be the new profit margin after the more expensive labor takes it hit. Again via algebra, M1 = M - (W/R). To keep the math easy, we'll consider a W where the hourly cost of labor increases $1 for the year (per employee): $1/hr 35 hr/wk * 50 wk = $1750. Now, a $5/hr increase to the employee would mean $5 plus FICA taxes etc. to the employer. So let's then consider a total increase of $6/hr of labor costs too. For Walmart, then, every dollar to labor is a $1750/$209,622 hit to the profit margin, or barely one basis point (0.835 bps). For McDonalds, it's $1750/$60,507, or 2.89 bps. So if Walmart doesn't want to budge from their spot on their supply-and-demand curve (whatever that may be), i.e. doesn't change prices, then in absorbing an additional $6/hr labor cost would mean settling for a profit margin of 3.45% (=3.5 - 6 * 0.835 / 100). And now McDonalds, for them it would be 18.8% (=19 - 6 * 2.89 / 100). So how'd I do?

by rskar 11y ago

ikeboy 11y ago

>I'm willing to bet that burgers and white socks will move about the same. If that's the case, then Walmart could double their profit now by raising prices. I doubt this. If you assume revenue goes up without an increase in costs, then yes, but there's little reason to assume that. Walmart carries millions of products, and to assume they can raise the price and not lose sales is wrong. > But your counterpoint conveniently side steps on just how the government produces the $7500 in your example. Raising taxes? I had in mind using taxes. I didn't discuss a shift in policy which requires a change in revenue, I was describing the end result. Government raises funds and spends it. T-bonds are just spending future tax money.

rskar 11y ago
>...then Walmart could double their profit now by raising prices. I doubt this. ... >If you assume revenue goes up without an increase in costs, then yes, but there's little reason to assume that. Well, let's review, and please check out my math below. I did some more googling and copy-pasted what I found. (copy-paste:) Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Hence revenue is an amount independent of costs. Two ways to raise revenue, by definition, is to raise prices or increase sales. (copy-paste:) Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business. Hence profit (and not revenue) is the amount that is dependent on costs. Note that net income is often considered the same as profit. Raising wages raises costs. Without a respective increase in revenue, profit is impacted. (copy-paste:) Profit margin represents the percentage of revenue that a company keeps as profit after accounting for fixed and variable costs. It is calculated by dividing net income by revenue. The profit margin is mainly used for internal comparisons, because acceptable profit margins vary between industries. For Walmart, quarterly profit margin is about 3.5% (https://ycharts.com/companies/MCD/profit_margin https://ycharts.com/companies/MCD/profit_margin). For McDonalds, about 19% (https://ycharts.com/companies/MCD/profit_margin https://ycharts.com/companies/MCD/profit_margin). So I was suggesting that increased labor costs could be balanced with increased revenue brought about by increased prices. For example, a 4% increase on a 10-pack of white socks that was $7.50 at Walmart is now $7.80. A 14% increase on a Big Mac that was $4.00 (http://www.fastfoodmenuprices.com/mcdonalds-prices/ http://www.fastfoodmenuprices.com/mcdonalds-prices/) is now $4.56. With some market research maybe we can figure out how many fewer socks and burgers get sold. But hey, at $4.56 a Big Mac it's still cheaper in the US than in Sweden and Norway (http://www.economist.com/content/big-mac-index http://www.economist.com/content/big-mac-index). An alternative to price increases is to accept a lower profit margin. Let M=Profit Margin, R=Revenue, C=Costs; hence M = (R - C)/R, straight from the definition of Profit Margin. We can show with some algebra that we can take R and C on a per-employee basis and M = (R - C)/R still works with per-employee numbers. Also, M = 1 - C/R. Via algebra, we can find the per-employee costs: C = R(1 - M). Let W be whatever increase in labor costs to be considered (per employee). Let C1 = C + W, the new cost from the increase in costs from labor. Let M1 be the new profit margin after the more expensive labor takes it hit. Again via algebra, M1 = M - (W/R). To keep the math easy, we'll consider a W where the hourly cost of labor increases $1 for the year (per employee): $1/hr 35 hr/wk * 50 wk = $1750. Now, a $5/hr increase to the employee would mean $5 plus FICA taxes etc. to the employer. So let's then consider a total increase of $6/hr of labor costs too. For Walmart, then, every dollar to labor is a $1750/$209,622 hit to the profit margin, or barely one basis point (0.835 bps). For McDonalds, it's $1750/$60,507, or 2.89 bps. So if Walmart doesn't want to budge from their spot on their supply-and-demand curve (whatever that may be), i.e. doesn't change prices, then in absorbing an additional $6/hr labor cost would mean settling for a profit margin of 3.45% (=3.5 - 6 * 0.835 / 100). And now McDonalds, for them it would be 18.8% (=19 - 6 * 2.89 / 100). So how'd I do?