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Companies aren't just supposed to make the maximum amount of money. If they were, then everything would be a bank. Companies are better thought of machines, li
by kerbalspacepro 8y ago
Companies aren't just supposed to make the maximum amount of money. If they were, then everything would be a bank.
Companies are better thought of machines, like tractors or printing presses. You buy a tractor and a printing press to ultimately make money, but the tractor and the printing press actually DO things. That is why it's importing to provide reasons.
- eldavido 8y agoSort of. Banks don't actually have that high of return on equity compared to industrials. I tend to think of it more like a source/sink model. Some companies are net sources of capital: agencies, most manufacturers, etc. Then there are sinks: railroads, blast furnaces, semiconductor plants. Sources produce free cash flow, sinks are a great way to earn x% on a billion or three of capital (not as easy as it seems). This is how Berkshire runs their balance sheet and it's pretty smart.