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

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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