Profit Dollars and Margins
Is it more desirable for a company to generate more profit dollars or maximize profit margins? So, as an example, would you prefer to have a company sell $100 of revenue at a 50% profit margin or $200 of revenue at a 25% profit margin?
Depends on the industry in terms of what exactly is an attractive margin/profit dollar balance. Generally, I prefer companies that are achieving sustainable above-industry margins because it gives the management team a higher breakeven and more opportunity to generate good ROIC.
That said, weak margins are more fun to dig into if we are pursuing an activist strategy.
It really depends. For example, if both companies are in the same industry. I'd rather take the company generating $200 in revenue since a change in management or cost structure could increase margins. However in general i'd take higher margins, as it allows for easier management capabilities. Why have a ton of revenue if your only getting pennies?
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