Garmin 195...295...296...396....

In article .com,
"Robert M. Gary" wrote:
The point is that "profit" is not an absolute. There is a cost to using
your money that is very, very tightly related to how the company is
financed. If you are a publicly traded company you must earn a return
to make your investors happy (usually calculated as risk free rate
(T-bills) plus risk premium for your stock). If you are financed by
debtors the the cost of your capitol is just the interest rate you pay.
All investors expect to get returns, but at different rates. This is
why companies have finance departments that know their "cost of
capitol".
So it is wrong to say "you must make a profit". If a product would
produce a "profit" of 2% but your investors expect a 10% return, you
are losing money and should not produce the product. This is where
companies financed through debt have an advantage (their cost of
capitol is often lower).


I didn't say "you must make a profit." I said that you must be
profitable to stay in business--which is an absolute truth in a
capitalist economy. How the business is financed is irrelevant if it
isn't profitable, at least over the long term. The entire purpose of
any investment is to make money. I also said that the goal of every
business is maximum profitability. Any attempt to cap profitability
(such as with taxes or tariffs or direct price controls) will discourage
new investment and production.

Any business that operates at break-even won't last long against its
competitors who are profitable and able to make further investments in
the business to compete in the market economy.

And it's still my contention that "capitol" is a building.



JKG

In article .com,
"Robert M. Gary" wrote:

Most businesses in the United States do not have debt traded on the
public market--they are small businesses. In this case, profitability
is even more important because the number of private debtors is usually
relatively small and the window of opportunity to turn loss to profit is
much narrower.

Again, you are using the term "profit" in an accounting way. If you are
a small company there is cost for you to use your money to produce the
product. If you are using your own money in the bank, then that cost is
the lost opportunity cost you could have had if you had left the money
in the bank, plus something for your risk. If you borrow money, the
cost is the cost to borrow the money. If you have investors (which is
what you are when you own a small company) the cost of capitol is the
return you require for it to be worth it to continue to invest in your
company.

If a product is going to return 0.5% then you'd be a fool to invest in
it, just buy T-bills. You need to return a "profit" that matches your
cost of capitol.

-Robert, MBA

Since you're an MBA, maybe this is all going over your head.

Explain to me, please, how a business can stay in business is a
competitive market economy without being profitable. What incentive
does the business have to produce anything if it can't be profitable?
How will the business compete if it can't invest in itself? How will it
attract investors to help finance growth if there isn't opportunity for
maximum profitability?

I would be interested in your answers, but will suggest that perhaps we
should take this off-line at this point, since it's evolved into
something not directly related to this group.



JKG