Posts Tagged ‘gross margin’

Rivalry (The Financial Athlete #35)

July 31, 2008

Major League Baseball’s New York Yankees vs. Boston Red Sox is probably the greatest rivalry in sports in America. This traditional rivalry is good for baseball.

Another great sports rivalry is Federer vs. Nadal, which is reviving interest for tennis in America. Rivalries always promote a sport.

A fierce rivalry of two companies is good for improving services and products, a plus for investors. But to more than offset this, in the heat of competition prices are substantially reduced. Gross profit margins erode, sometimes to the bare bone.

One of my top considerations in evaluating a stock are the three margins: gross profit margin, operating profit margin, and net profit margin. Regardless of the size of the company, I seek high margins in the financial statements. Then I evaluate whether these margins are sustainable or threatened.

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