as always I read your email after going through all the other subscriptions, notifications, SA articles, etc. I always save the best for last! : )
On the topic of Gross Profit and GP margin, I would like to kindly ask you for some clarification.
Is it not that if your GP margin is, let's say, 40%, it means that it would take 60 cents to produce your product and then sell it for a dollar?
So then, If you sold something for a dollar, and it took you 60 cents to produce it, what you're left with is 40 cents of gross profit. Hence, your business has a 40% gross profit margin.
Perhaps, I misread that part of the email, but I think there's a small typo.
Thank you kindly for the awesome content you send our way on a regular basis!
You are indeed correct, P K. We adjusted it in the article but the email was already sent to everyone. I corrected the article a few minutes after publication.
I think that articles like this and previous ones are a very quality investment course. The explanations are very clear and easy to understand. I have paid for courses that were not that useful, this information is worth money. Thank you so much!!!.
Thanks for this article. Super clear explanations as usual. Any suggestion about the level of margin % to consider as strong company advantage? for gross profit % and net profit % something around 40% and 20% or?
Thank you for your message. Ideally, I want to own companies with a ROIC above 15% and profit margin above 10%.
Regarding the gross margin... it depends a bit on the kind of business. They should be higher than peers and more robust. When a company has high and stable gross margin, it indicates that they have pricing power + a sustainable competitive advantage.
Well done article, thanks! Please, I have a question: if the cash flow statement uses the cash accounting aproach, why it does calculate begining with the "net income value", which is a value based an accrual accounting? It does not make much sense to me....
Good job; this i brilliant. Good first post in my mailbox after subscribing.
Thank you very much, Tobias!
Always open for topic suggestions to write about in future articles. You can always contact me via compoundingquality@gmail.com
Thanks for sharing. Its very helpful.
Thank YOU for reading !t.
Informative piece! Thanks for writing
Thank you very much, Shailja!
Compounding Quality,
as always I read your email after going through all the other subscriptions, notifications, SA articles, etc. I always save the best for last! : )
On the topic of Gross Profit and GP margin, I would like to kindly ask you for some clarification.
Is it not that if your GP margin is, let's say, 40%, it means that it would take 60 cents to produce your product and then sell it for a dollar?
So then, If you sold something for a dollar, and it took you 60 cents to produce it, what you're left with is 40 cents of gross profit. Hence, your business has a 40% gross profit margin.
Perhaps, I misread that part of the email, but I think there's a small typo.
Thank you kindly for the awesome content you send our way on a regular basis!
Best Regards,
You are indeed correct, P K. We adjusted it in the article but the email was already sent to everyone. I corrected the article a few minutes after publication.
Thank you for noticing!
You are most welcome, Sir!
Correct P K :)
Wow! I will never look at them papers the same. Thank you very much for the post
I think that articles like this and previous ones are a very quality investment course. The explanations are very clear and easy to understand. I have paid for courses that were not that useful, this information is worth money. Thank you so much!!!.
Thank you very much! We'll probably compile these articles in a free course in the future!
Thanks for this article. Super clear explanations as usual. Any suggestion about the level of margin % to consider as strong company advantage? for gross profit % and net profit % something around 40% and 20% or?
Hi Tiri,
Thank you for your message. Ideally, I want to own companies with a ROIC above 15% and profit margin above 10%.
Regarding the gross margin... it depends a bit on the kind of business. They should be higher than peers and more robust. When a company has high and stable gross margin, it indicates that they have pricing power + a sustainable competitive advantage.
Well done article, thanks! Please, I have a question: if the cash flow statement uses the cash accounting aproach, why it does calculate begining with the "net income value", which is a value based an accrual accounting? It does not make much sense to me....
I hear you. It's a very good question.
In general, there are 2 ways to calculate cash flows (a direct one and an indirect one).
I explained the indirect one in this article, the direct one might make more sense to you.
This is the formula for the direct one (operating cash flow):
Cash Received from Customers = Sales + Decrease (or - Increase) in Accounts Receivable. Cash Paid for Operating Expenses = Operating Expenses + Increase (or - decrease) in prepaid expenses + decrease (or - increase) in accrued liabilities.
Very good Article !
Thank you, Ramiro!
Brilliant, thanks!
Thank you, Alessandro!
Excelente artículo, muchas garacias por tu capacidad didáctica. Saludos
Thank YOU for reading it, Manuel! We published the last one in this series today: How to analyze a Statement of Cash Flows.
Thanks sir
Thank YOU for reading i!t!