DawgTalkers.net Forums DawgTalk Palus Politicus Sigh…the economy

I think Covid and the War in Ukraine just proved beyond any measure of a doubt that other factors are in play.

Yhat is correct and exactly what I said that the margin is baked into the product cost. Margins almost always stay the same. Whatever % increase happens to COG is done through their markup and is reflected in the new product price.


what I think you might be missing is that the dollars become larger. People are assuming higher profits because companies are selling fewer products at a higher margin. The reality is their sales are likely to be the same or fewer and can still and have more money

if a company sells 10,000 widgets for 130.00 in 2020 they will have 1,300,000 in sales and their margin is now 30% of 1,000,000 is 390,000 "profit"

if a company sells 10,000 widgets for 143.00 in 2021 they will have 1,430,000 in sales and their margin is now 30% of 1,000,000 is 429,000 "profit"

if a company sells 10,000 widgets for 157.00 in 2022 they will have 1,570,000 in sales and their margin is now 30% of 1,000,000 is 471,000 "profit"

if a company sells 10,000 widgets for 173.00 in 2022 they will have 1,730,000 in sales and their margin is now 30% of 1,000,000 is 519,000 "profit"

This is how companies make more money and "record profits" in the short term.

right now, consumers are taking the brunt of inflation. If it drags on too long, people will be forced to change their spending habits.

I don't know that we are disagreeing. But if companies are making higher profit off less sales it means their margin is increased. So your example with a consistent margin of 30% doesn't fly. You can't make record profit off reduced sales if the margin is consistent... In your examples above - the company not only recorded record profit - but record sales too.

What I have seen virtually everywhere - companies are making record profit and record profit margin off fewer sales. It is akin to price gouging because the market has no choice. Same thing happened in the boom years of construction back in the day. You get to a point where you can only bid so much work and you throw out ever escalating quotes because you don't actually want/need the work. I can't tell you you how many contractors I know who have won a bid they thought they had put a stupid high price on during good / busy times.

The deal is that demand doesn't drop a whole lot. People still have to go to work, take kids to school, etc., so profit dollars go up even when margin over cost of good remains static. Thus, a company isn't gouging even though profit dollars increase.

Gross profit is factored on a percentage set over the cost of goods. The percentage stays the same, but as the cost of goods goes up AND down, the gross profit dollars increase and decrease.

The net profit starts to seem high or low because the cost of doing business such a labor costs etc remain somewhat constant. Labor and other costs are controllable to a large degree, but non controllable expenses such as insurance, interest payments etc aren't.

So while some look at high profit dollars and start screaming how big bad Exxon is ripping off customers, they don't know what they are talking about.....or more probably they do but simply lie to rile up the public.

If we start talking about regulating the profit of a company, we are talking communism.

Where did that come from?

You can because as cost increases, even if margin stays the same, the GP in dollars increases as well.

10.00 cost at 10% margin is 11.11 sell (1.11 GP)

12.00 cost at 10% margin is 13.33 sell (1.33 GP)

But if you sell the same quantity of items at $13.33 as you sell at $11.11 then your revenue has INCREASED AS WELL.

I am saying - clearly not very well - that companies are selling less, have less turnover - and they are making record profits. Their margin is increasing - significantly.

If your sales turnover or revenue is $1 million in 2020. And Less than $1 million in 2021 - and you made more net profit ... your margin increased. If companies are making higher net profits in 2021 than ever before on smaller turnover - then their margins have gone up.

Yes if you're talking straight sales(revenue) dollars then yes.

I thought we were talking about oil/gasoline, where volume of sales (units) doesn't see much of a change even when prices and cost increase.

But at the same time, in basic cost rising market you can sell more than the previous year, make more profit all at the same margin, while selling less units.


2020
cost $45.00 Sell $50.00 (10% margin)
Sell 20,000 widgets for 1,000,000 in sales
Cost on all those widgets was 900,000
Company Profit 100,000

2021
cost rose to 60.00 sell 61.11 (10% margin)
Sell only 17,000 widgets
that's 1,038,870 in sales
Cost for the widgets was 935,000
Company profit 103,870

Made more sales and profit, sold 15% less widgets

We do this to maintain volume. We will quote higher prices, which will persuade price conscious customers to shop elsewhere while our customer base that appreciates what we bring to the table stay. This allows us to focus more on our service to those customers and not stretch ourselves thin, where our service and quality is affected by our volume.

Let Them Eat Lentils” Is The New “Let Them Eat Cake”

Eat lentils and let your pets die of cancer! Bloomberg is slammed for out-of-touch op-ed lecturing Americans earning less than $300,000 on how to beat inflation!

-A March 13 op-ed by Teresa Ghilarducci was criticized online for its suggestions on how to deal with inflation
-Ghilarducci suggested switching to vegetables to avoid inflated meat prices
-She also posed taking public transportation because prices are only up 8% compared to 38% for gasoline
-The piece also declares that the cost-of-living crisis most affects those who earn less than $300K
-And for new pet owners, Ghilarducci advises 'to rethink those costly pet medical needs' by cutting back on cancer treatments for much loved furry-friends.

They could care less about the flyover Americans between the East Coast and West.

Elitist Dems...Pfft

Regulating profit equating to communism is a blanket statement, though. You know the other phrase: “Pigs get fat and hogs get slaughtered.”

When you have companies out there like Transdigm, Turing, and whatnot pulling off exorbitant profit basically through extortion, you have that fever pitch, which leads to civil unrest, which I think is probably the biggest catalyst to more of the government intervention that concerns you.

I tend to agree with you when it’s a more competitive market place and people are still willing to pay the prices, assuming there is no collusion among the competitors.

My solution by the way is not for a straight up regulation of profit, but to maximize competition, which I think is a traditionally conservative value I espouse that is another tenant Republicans have veered away from, as seen through a multitude of legislative hearings, including Transdigm.

People beaching about record profits.

You are factoring wrong. You are looking at net profit dollars. Margin isn't based on that. It is based on cost of goods.

No... But never mind.

The margin a company reports to the Street is net margin. Net profit as a ratio of total costs.

If a company is making more profit off less revenue their margin went up. Fact.

my friend, I just don't think you understand what everyone is trying to tell you and I have been trying to tell you.

I even broke it down as simply as I could in the examples where sales, margin were all the same and showed you how the company made more "profit"



**This is also what people don't understand about taxes and corporate taxes. I can make my company be at net.01% profit by spending millions in a year on new assets, new buildings, product upgrades, machines, updates etc. Meanwhile from a gross perspective operating at 30% gross profit. It is literally impossible to correlate or why they have a net margin where they do base on cogs.

PS. 99.5% of companies are not publically traded.

Yes you did. And I pointed out that in your example - they made more profit AND they made more total sales.

What I am telling you - in 2021 - companies were selling less but making more profit. How did they do that?

I pointed out the same sales each year.

Florida tried to explain that to you too where there were 15% less sales and more profit

No - in the example provided sales went up by $38,870.
Profit went up by $3,870 - the same proportion (10%) costs rose by.
====
2020
cost $45.00 Sell $50.00 (10% margin)
Sell 20,000 widgets for 1,000,000 in sales
Cost on all those widgets was 900,000
Company Profit 100,000

2021
cost rose to 60.00 sell 61.11 (10% margin)
Sell only 17,000 widgets
that's 1,038,870 in sales
Cost for the widgets was 935,000
Company profit 103,870
====


So no - no-one has shown how you can sell less - make more - without increasing margin. I'll happily wait till someone can though since everyone keeps implying that it is possible.

seriously? in the above example it's not implying. it's literally showing you and so were my examples.

sell = individual items sold
sales = revenue
margin = 10% in both cases

I said earlier - I don'tr know what you are trying to say or prove. Nothing you wrote in your example was wrong - but it also did not prove anything.

WHAT I HAVE SAID FROM THE START IS YOU CAN'T REDUCE THE NUMBER OF SALES DOLLARS AND INCREASE YOUR PROFIT DOLLARS UNLESS YOUR MARGIN INCREASES ...

Your example - FL example does not show otherwise. I just highlighted this. In FL example sales revenue INCREASED... it did not decrease.

I think at this point you are so set that you are right that you are not paying attention or reading what I have written.

what you originally said that sparked all of the explanations and examples:



"companies are making record profit and record profit margin off fewer sales"

"I am saying - clearly not very well - that companies are selling less, have less turnover - and they are making record profits. Their margin is increasing - significantly."
"



now, you are trying to say... "sales dollars not items sold.

so, honestly, sincerely, it seems like you really don't know what you are talking about so you are confusing yourself. We are literally trying to explain to you how it works.



**Also, you can't use what goes on with Wallstreet as an example when discussing gross and net profits and margins. Besides, people look at EBITA anyway. Public companies are different than 99.5% of businesses in the USA.

We wouldn't be in this mess if the government stopped spending trillions of dollars and printing money out of thin air.

They put more fiat fake money in circulation through stimulus checks and big programs and then act surprised when there's inflation!! Lmao!! They must not be very smart.

Raising interest rates work because it makes people less apt to borrow money, buy a mortgage, purchase real estate deals, buy a car, do business because you're paying more. It shrinks the supply of money in circulation over the long run by making it more expensive to borrow (which is what a loan/lien actually is).

Thanks - I know how it works. You clearly don't read or do not know how it works.

There is not a company on earth that reports their financials based on "Units sold" ... so when we are having a conversation about companies and sales, unit sold is not part of the discussion. But there you go. I even started to refer to REVENUE.... but hey, you do you. All good. Of course you could just tell me that on my original point I was right.

Thanks.

To add to that - the company I work for is a billion dollar publicly traded company... just like most companies, there are so many products, divisions, variations, innovations, obsoletions that it would be absolutely impossible to talk about "units sold". Even something simple like a company that sells "pencils" will have hundreds if not thousands of different offerings and bespoke products that talking about 'units sold' would be pointless. The only industry I know that reports on units sold is smart phones - and that is regards to share of the market (users) not in regards profit/sales or revenue.

I appreciate that you work for a billion-dollar publicly-traded company.


You have also made it painfully clear you do not work in accounting or the C-suite.

I can see where you confusion would be and thinking I was talking about units. Clearly.

And your response was to claim this was still wrong and that most companies aren't publicly traded.

You also said margin is based on cost of goods. Maybe there are different ways to look at margin - but in your example of marking COG up by 30% ... that isn't margin, that was just that, a 30% mark up. I was taught that margin is the ratio of profit to sale price .... if you bought something for $100 and marked it up by 30% and sold it for $130.00 then the MARGIN is $30 (profit) divided by the sale price ($130).... so in this example 23% net margin. For a company - their operating MARGIN is total profit as a ratio of total sales/income.

OK...another try because you are confusing profit margain margin on sales with bottom line profit.

Say your item cost $1.00. Your company needs a 50% profit before paying out expenses after the cost of goods.

Your selling point is $2.00, not $1.50.



50% profit of $2.00 is $1.00

That is how even with fewer items sold, within reason, a company protects the bottom line and can indeed show record profits even with off sales numbers. The reality is most companies need to work on 60-70% profit margin.

Mark-up and profit margin are different. Business people who don't end up going broke and wonder why.

I hope that helps because I don't know any other way to explain it.

Time for my morning walk, be back later.

mgh888 is talking strictly dollars, so he is right that is you sell less total dollars than the previous year you would have to increase margin to increase profit beyond the previous year.

But I don't understand why increasing margin is a problem, if sales go down (say because of covid), you still have hard costs you have to cover (storage, labor, shipping, packaging, production), then to ensure you meet your own financial obligations, you increase margin to help offset the deficiency.

yeah, mgh888 changed his questioning about 1/2 way through. Mostly, because mgh really didn't/doesn't know the proper verbiage or normal slang that people use when discussing it with others.

Plus, what I think mgh is really struggling with is that you read on stock sheets and how you look at a company's profitability is completely different from how a company looks at setting a margin/gross margin and markup and " the why prices go up or down".

maybe this will help mgh...

Outsiders look at it as they divide things to find the answers and profitability of a company and interpret the company's stats. (armchair quarterbacks)
companies are trying to multiply things to get their final price and profit. (quarterback)

Large companies work on a profit margin over cost of goods sold. Especially companies that deal in commodities where prices fluctuate daily or weekly. You notice it more on gasoline because the cost is already high. You deal with the same thing with a loaf of bread, you just don't notice it as much because you are usually working out of storage capacity. Oil companies don't pump everything over a 4-5 month period, then shut down for the year. They don't deal with growing seasons like food producers. The government also regulates food prices to a degree. That's why you sometimes read about farmers getting paid to not grow or limit a crop of some sort. We try to support the price so farmers can make money and not go broke, but we don't want them doing that on their own, so we don't have shortages.

Thanks for the acknowledgement of my point - without any put down.

Regards your second point here - we were talking about inflation in one of these threads - and causation. While I agree that businesses have fixed costs they have to recover, which might demand an increase in profit margin to make sure they are covered during slow times. What I alluded to and spelled out in this thread was businesses not merely covering overheads on fewer sales - they are making record profit off smaller turnover/sales volume. That's both manufacturer's / Suppliers as well as contractors. I'll admit my sample size is small - but it's basically anyone I talk to about this topic who I know well enough to have a candid conversation. There's been articles written about this as well - and the impact is significant and adds to the inflation we have seen.

Could that be the supply and demand variable? I work for a company in the construction supply business, and us and well as our customers have seen such a demand, that we raised prices (margins) beyond the cost increases, just to slow it down for ourselves.

It's a debate we are having around here daily with some new management who just see the $$, and just want to keep taking on all business, even though we already at struggling to keep up and making more mistakes than we ever have. Many of us who have been here 20 and 30 years are arguing to slow it down, focus on our life long customer base, the ones that stuck through with us , and us with them, during leaner times.

They are not increasing their profit margin to cover their cost of goods.

They increase their markup.

profit margins are the result of sales - the cost of goods / sales

Companies usually increase their "markup" usually only when their cogs go up, they are at max capacity, or they don't want to do the work and charge someone ... "it will cost extra fee" because they have to stretch their capabilities against their labor or because they don't want to do it.

Taco bell...i could buy 3 tacos, 1 bean burrito and a medium pop for $4.99 about 2-3 years ago....that same order cost me $9.87 yesterday......mcdonalds quarter extra value meal cost me $2.99 in high school 25 years ago. Government inflation rates say prices have went up 50-60% over that time frame so thst meal should cost about $5.00 based on .gov math.....but last week it cost $8.59....personally, i can handle those cost as well as the gas costs, but i know many cant (or wont cause they cant prioritize). But .gov lying about everything just to paint a pretty picture and help their own books aint helping.

It's all across the board. It's very troubling.

A fact not being reported in the mainstream other than the financial publications is the inversion being seen in the bond markets.

In a nutshell and way simpled down, when short term rates flip and start paying more than long term rates, it's a strong sign that recession is right around the corner.

As turned around as we are, it could get pretty deep. The floor on which we stand isn't very stable.

Is that the case now with bonds, where the short term is higher than the long term? Honest question, because I’m looking at my Mom’s investments (81 y/o).

The 2 and 10 came out today. Other bonds have been showing the same thing, but the 2 and 10 was the biggie.

https://www.msn.com/en-us/money/mar...recession/ar-AAVJeCW?ocid=BingNewsSearch

I just brought this up as a FYI. Not as advice.

https://www.linkedin.com/news/story/inflation-rockets-to-41-year-high-4756545/

Inflation rockets to 41-year high

Share
By Theunis Bates, Editor at LinkedIn News
Updated 7 minutes ago


Inflation accelerated to 8.5% in March from a year earlier — the highest rate since 1981 — with sharp rises in the cost of fuel and food hitting consumers' wallets, according to new Labor Department data. A large chunk of the consumer price surge is a result of Russia’s invasion of Ukraine, which sent fuel prices spiking last month, with U.S. gas prices briefly hitting a high of $4.33. But supply chain snarls, booming consumer demand and rising wages and housing costs are also pushing up inflation.

Inflation rose 1.2% in March from a month earlier, the highest monthly gain since 2005. Gas prices accounted for half of the rise.
Economists expect the sharp rise in prices will lead the Federal Reserve to step up its inflation fighting efforts and hike interest rates by half a point next month.



Shelter is the single biggest component of CPI (33% of Index) and is still being wildly understated (@ +5% YoY) with rents up 17% over the last year and home prices up 19%. The actual inflation rate is much higher than 8.5%. - Charlie Bilello

Price increases over last year (CPI report)
Gasoline: +48.0%
Used Cars: +35.3%
Gas Utilities: +21.6%
Meats/Fish/Eggs: +13.7%
New Cars: +12.5%
Electricity: +11.1%
Food at home: +10%
Overall CPI: +8.5%
Transportation: +7.7%
Food away from home: +6.9%
Apparel: +6.8%

SHAME!

What the hell did you expect after the sheet show Trump put on? Four years of massive deficit spending and tax cuts for the rich did nothing to cause this, huh? Shutting down the country for the pandemic had nothing to do with it. The pandemic itself had nothing to do with it. Putin's war has nothing to do with it. GOPers are still clutching their pearls over crap started by them… FAKE PEOPLE.