You Can Thank Private Equity for That Enormous Doctor's Bill

Re:You Can Thank Private Equity for That Enormous Doctor's Bill by delfinom on Thursday May 30, 2024 @08:58AM (#40523117)

> But why doesn't this happen to restaurants, or super markets or car mechanics?

Restaurants too have slowly been gobbled up in my area of NY suburbs into larger groups. I think the Main St here with 20 or so restaurants is owned by just 3 groups.

Supermarkets are an incredibly low margin business and they would have to compete with existing players on those thin margins including titans like Walmart. There's not much more blood to extract there.

Independent mechanic shops have been dwindling naturally because it's too expensive for newbies to get into the field, especially between rent and needing all their own tools. End of day, formally "car shop" areas here are being bulldozed for luxury rental apartments.

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Re:You Can Thank Private Equity for That Enormous Doctor's Bill by JoeAltmaier on Thursday May 30, 2024 @09:03AM (#40523168)

Margins is half the story. You get 1% on a loaf of bread, that's reported as 1% margin. BUT you turn that loaf around every day for a year, that's 365% margin, annualized.

Shoe stores, now they have a problem. They don't turn the inventory over but monthly or worse.

But McD's? They sell that hamburger a thousand times a day.

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Re:You Can Thank Private Equity for That Enormous Doctor's Bill by krisoft on Thursday May 30, 2024 @09:43AM (#40523639)

> You get 1% on a loaf of bread, that's reported as 1% margin. BUT you turn that loaf around every day for a year, that's 365% margin, annualized.

I don't think that is how margins work. Let's say you sell a unit of bread for $100, but you spent $99 the make the bread that's a 1% margin. If you sell a single bread per day for 365 days you earned $36500 and spent $36135 to make those bread. That is still a 1% margin.

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Re:You Can Thank Private Equity for That Enormous Doctor's Bill by Workaccount2 on Thursday May 30, 2024 @09:55AM (#40523760)

I think they are confusing compound interest with margin.

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Re:You Can Thank Private Equity for That Enormous Doctor's Bill by JoeAltmaier on Thursday May 30, 2024 @01:11PM (#40526137)

You spend the same $100 every day - you got that back when you sold the bread. On that cash balance, you make $1 every day of the year.

That's what annualizing does. It's on the dollars invested, not the money thrashed.

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Re:You Can Thank Private Equity for That Enormous Doctor's Bill by krisoft on Thursday May 30, 2024 @05:35PM (#40528974)

Hmmm. Interesting idea. So this is how I should be thinking about the process: On day one I invest $99 dollar into stuff and get a bread. I sell it on the same day for $100. (Turns out spherical cows in vacuum eat very expensive bread.) Then on the second day I take the $100 thus earned and spend $99 out of it on stuff to bake a bread. I have a bread and $1 dollar in the business. I sell the bread for $100 and I have $101 at the end of the day. And so on and so on. 365 days later at the end of the day I have $464. (I might be off by one there.)

If I look at that business in a year had $464 revenue and $99 cost. Investopedia defines gross margin as "(Revenue − Cost of goods sold) / Revenue" So that would be (464-99)/464=0.79. So that is a 79% margin. Below the 365%. Where I'm going wrong?

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Re:You Can Thank Private Equity for That Enormous Doctor's Bill by JoeAltmaier on Friday May 31, 2024 @07:23AM (#40533662)

Mixing annualized numbers with transaction ones. Margin is a single sale. That's 1%

Look, I'm just making the point that comparing margins on a sale is a crappy way to compare business. It ignores the value you get for each investment dollar. Correct that by annualizing return per dollar. Then you see the relative value of business models e.g. McD's vs grocer store vs shoe store.

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