3 ms·

food retail margins are 2% every time they turn over their inventory, which if they manage it properly can be much less than a month. so that 2% is annualized v

food retail margins are 2% every time they turn over their inventory, which if they manage it properly can be much less than a month. so that 2% is annualized via a large multiplier the margins for telecoms are considered on an annual basis.

PaulDavisThe1st 3y ago
Sorry, I don't understand. Are you saying that gross revenues for food retail are higher, and thus 2% of <a huge number> is bigger than 12% of <a smaller number> ?
- fsckboy 3y ago
  if you buy broccoli and sell it a few days later at a 2% profit (net of costs), you just made 2%. if that took you a week, and you do it again the next week, and the week after that, you took your investment and grew it 52 weeks @ 2% a week, you'd be at 280% or more than 180% profit (1.02 ^ 52, presuming you also buy and sell 2% more of the broccoli itself every week. if you just buy the same amount of broccoli every week that's just 52 * .02 plus a little for interest, and you take the profits and pay off debts or take it as income, etc.) if you lay fiber and connect it to the internet and hire cable guys to visit people's houses and customer service people to answer the phone, and your total revenue for a year minus your costs for a year comes out to a profit margin of 50%, you have 50% margins.
  - frumper 3y ago
    If you buy broccoli for $1.00 and sell it in a week for $1.02 you’ve made 2%. If you buy another broccoli for $1.00 and sell it again for $1.02 then you’re still at a 2% profit for the year. You’ve spent $2 on inventory with revenue of $2.04, for a total profit margin of 2%. This is obviously simplified.
    - fsckboy 3y ago
      the piece of corporate finance you are missing is that the money you use to buy the broccoli is scarce, you have to "pay" for it. you can't leave it out of the calculation. You pay for it to who you borrowed it from, or to your shareholders, or the opportunity cost of taking it out of whatever use somebody else was paying you for. that dollar you use to buy the broccoli, it's like a machine you use to knit sweaters. If you put that dollar to use for a year and sell one broccoli, you made 2%. If you put that same-single-dollar to use for a year and sell 52 broccolis, you made more. what I originally said was that you can't just look at the margin on a sale, you need to look at inventory turn, how many times you collect the margin. what makes the margin low is competition. a grocer is willing to accept a 2% margin on a sale because the cycle can be repeated many times in a year. In a sense, the interest rate (which is quoted at annual rates) on the borrowed dollar is fixed at that annual rate, but if you get to cycle through your operating capital quickly, you get to look at it as the amount of interest you need to pay each week.
  - jrflowers 3y ago
    This math makes sense because grocery stores only buy broccoli once and then sell it over and over again for theoretically infinite profit. $1 spent on a broccoli over a year can be in the millions due to this phenomenon

PaulDavisThe1st 3y ago

Sorry, I don't understand. Are you saying that gross revenues for food retail are higher, and thus 2% of <a huge number> is bigger than 12% of <a smaller number> ?

fsckboy 3y ago
if you buy broccoli and sell it a few days later at a 2% profit (net of costs), you just made 2%. if that took you a week, and you do it again the next week, and the week after that, you took your investment and grew it 52 weeks @ 2% a week, you'd be at 280% or more than 180% profit (1.02 ^ 52, presuming you also buy and sell 2% more of the broccoli itself every week. if you just buy the same amount of broccoli every week that's just 52 * .02 plus a little for interest, and you take the profits and pay off debts or take it as income, etc.) if you lay fiber and connect it to the internet and hire cable guys to visit people's houses and customer service people to answer the phone, and your total revenue for a year minus your costs for a year comes out to a profit margin of 50%, you have 50% margins.
- frumper 3y ago
  If you buy broccoli for $1.00 and sell it in a week for $1.02 you’ve made 2%. If you buy another broccoli for $1.00 and sell it again for $1.02 then you’re still at a 2% profit for the year. You’ve spent $2 on inventory with revenue of $2.04, for a total profit margin of 2%. This is obviously simplified.
  - fsckboy 3y ago
    the piece of corporate finance you are missing is that the money you use to buy the broccoli is scarce, you have to "pay" for it. you can't leave it out of the calculation. You pay for it to who you borrowed it from, or to your shareholders, or the opportunity cost of taking it out of whatever use somebody else was paying you for. that dollar you use to buy the broccoli, it's like a machine you use to knit sweaters. If you put that dollar to use for a year and sell one broccoli, you made 2%. If you put that same-single-dollar to use for a year and sell 52 broccolis, you made more. what I originally said was that you can't just look at the margin on a sale, you need to look at inventory turn, how many times you collect the margin. what makes the margin low is competition. a grocer is willing to accept a 2% margin on a sale because the cycle can be repeated many times in a year. In a sense, the interest rate (which is quoted at annual rates) on the borrowed dollar is fixed at that annual rate, but if you get to cycle through your operating capital quickly, you get to look at it as the amount of interest you need to pay each week.
- jrflowers 3y ago
  This math makes sense because grocery stores only buy broccoli once and then sell it over and over again for theoretically infinite profit. $1 spent on a broccoli over a year can be in the millions due to this phenomenon