3 ms·
Margins need to be up in order to pay for the increased cost of capital.
by cperciva 3y ago
Margins need to be up in order to pay for the increased cost of capital.
- hotnfresh 3y agoYou don’t pay costs out of margin. That’s what‘s left after costs.
- marcosdumay 3y agoOwn capital costs are exactly the thing that margins pay for.
- willcipriano 3y agoIf they were paying lots for capital, they'd have lower margins.
- mr_toad 3y agoOnly if it’s debt financed.
- roenxi 3y agoAdding in that the economy was partially parked up through COVID and the risks of being shut down by the government turn out to be much higher than people realised hitherto. Margins need to go up in that sort of environment to push everything back to how things were pre-pandemic, otherwise nobody will bother. Not many are crazy enough to put lots of money into low-margin businesses that are at high risk of being shut down. Capitalists are greedy but not stupid.
- steveBK123 3y agoNot quite right. I'd argue the reason you want higher margins in a higher interest rate environment is the "risk free rate" is now higher. If the risk free rate is basically 0%, you'll invest in a risky business that makes 5% margin. If the risk free rate is 5%, now you want the risky business investment to have 10% margin to be worth the same investment.