There’s a persistent belief among investors that companies with high margins are better than those with low ones. To a limited extent, this is true, but the issue is much more nuanced than is commonly thought. In fact, in many cases, a high-margin firm in a given industry is in an inferior position to one with lower margins.
I’ll be writing about this over the rest of this week, after my Keeping Score analysis of the sector performance of the S&P 500 for May tomorrow.
What are margins?
They are ratios. They’re ratios of profits to sales, usually expressed as percentages. The most commonly used are:
–gross margin, which is the based on profits after deducting direct costs of providing goods or services
—operating margin, which is based on profits after deducting both direct and indirect costs
—pre-tax margin, which is based on profits after all costs ex tax (the main added item is interest expense), and
—net margin, which is based on profits after all costs, including income tax.
I received an email a while ago explaining that I might be one of a large number of Twitter users whose account might have been hacked in 2012. The email suggested I change my password …which, of course, I failed to do.
Last night I got another email noting possible suspicious activity in my account. For anyone who might be interested, no, I am not the scantily clad woman whose picture appeared on my account yesterday. Nor am I touting her sex site.
I have since changed my password and removed all (I think) the offending material. A weird experience.