4 ms·

Because a 5% margin doesn't translate to a 5% annual return on investment. Also at many small restaurants the owner and the owner's family is also working full

• danans 7y ago
  > that 5% margin doesn't include their salaries. This is something that often seems lost in this discussion. The profit margin is usually after the owners themselves have taken a salary. If they are paying for themselves appropriately, and the margin is 0%, this is often described as "making no money". What's making no money here is the business as an entity, not the owner, despite the frequent rhetorical conflation of the two. Payout of positive margins, if they exist, are often classified as "profit sharing" in the simplest of businesses, like sole proprietorships. In more complex large businesses, they become dividends or employee bonuses. Most people can't afford to pay themselves nothing while running a business.
  • csomar 7y ago
    They might also be optimizing for taxes by heavily re-investing, charging personal stuff on the expense account (like car/gas/travel)... That makes it look like they are doing badly while they are doing okay.
    • imtringued 7y ago
      This would be clearly visible to investors because the company is accumulating assets.
      • learc83 7y ago
        1. It's unlikely investors are looking into small lifestyle businesses. 2. The company isn't going to accumulate many assets if the owners are paying for gas, travel, food, and rapidly depreciating assets.