Public Financial Data Examples

What does each example tell us about the cost position of the competitor?

Example 1:

In 1994, Regal generated net profit margins of 8%, almost double the margin of the larger publicly held exhibitors, such as AMC Entertainment, Cineplex Odeon and Carmike Cinemas. (
Year 1994-SIC 7832)

Explanation: Regal's higher after-tax profit margins imply that the Company also had higher pre-tax operating profit margins. If so, it had lower operating costs than its competition. Regal was better than its competitors in managing people and purchases.

Example 2:

In one quarter of rising jet-fuel prices, five of the largest air carriers-including Delta, United, and American-lost money. Southwest made $121 million in net profits-up 65% from the previous year. (
Year 2001-SIC 4512)

Explanation: Southwest had lower operating costs than its competition. It beat its competition in managing people and purchases because it produced a positive return on sales while its competition produced losses on sales.

Example 3:

Despite the improvement of theater margins from 9.3% to 10.2% over the last two years, General Cinema's trailing 12-month theater cash flow margin is the lowest in the industry. The low margins have resulted from higher rent and more competition. (
Year 1997-SIC 7832)

Explanation: This company has the highest operating cost in the industry because its operating margins (Return on Sales, or operating profits divided by sales) are the lowest in the industry.

Example 4:

In 1997, LandStar System, Inc. used an extensive network of independent agents and owner-operators, a strategy which minimized capital costs. As a result, the Company had returns 15%-20% higher than the Truckload group average. (
Year 1997 – SIC 4213)

Explanation: The Company had a very low cost structure because of its high returns on investment compared to the industry average. A major reason for its low cost structure was its capital efficiency (Return on Assets, or total assets divided by total sales). The Company produced more sales on its Capital base than did the average competitor in the industry.

Example 5:

Despite being only 2/3 of GM's size, Ford had 2 years of higher earnings. (
Year 1987-SIC 3711)

Explanation: Ford had a lower cost structure during this period than did GM. Its return on investment was high

Example 6:

In 1998, Cincinnati Milacron was #3 in the world in cutting tools, but the Swedish #1 producer consistently produced higher operating profit margins, in excess of 20%. (
Year 1998-SIC 3541)

Explanation: The market share leader in the industry had higher operating margins (Return on Sales, or operating profits divided by sales) than did Cincinnati Milacron. The number one producer achieved higher sales per dollar of people and purchases costs than did Cincinnati Milacron.

Example 7:

In 1997, NCI's 11% profit margin far exceeded that of its two publicly held competitors: American at 8%; and Butler at 5%. (
Year 1997-SIC 3448)

Explanation: NCI's operating margin (operating profits divided by sales) was better than its two competitors. NCI achieved higher sales per dollar of people and purchases costs than did its competitors.

Example 8:

In 1994, Cooper enjoyed some of the best return figures in the industry, with an average Return on Net Capital Employed of 28% for the period 1989-1992. Cooper enjoyed an advantage in SG&A expenses as a percentage of sales, primarily as a result of its keen focus on cost containment and on its careful choice of customers. Because Cooper served only the replacement market, it had ample time to reverse-engineer successful designs introduced in the Original Equipment market. As a result, Cooper's R&D expenditures, as a percentage of sales, were less than half those of its larger competitors. (
Year 1994-SIC 3011)

Explanation: Cooper had a very low cost structure for its industry as evidenced by its high Return on Net Capital Employed (RONCE). The majority of this superior return was due to low operating costs of people and purchases as a percentage of sales.

Example 9:

During the early-to-mid 70's Anheuser-Busch's ROE was around 15%. Other firms had much lower returns. (
Year 1975-SIC 2082)

Explanation: Anheuser-Busch had the industry's lowest overall cost structure as proven by its industry leading Return on Equity.

Example 10:

United Technology's operating profit margin, over a four year period, ranged from 4.6%-8%. This compared poorly with General Electric's 9.6%-11.7% over the same period. United Technology's Return on Equity was also below that of General Electric. (
Year 1992 – SIC 3569)

Explanation: General Electric had a lower overall cost structure than did United Technology, based on its higher Return on Equity. General Electric enjoyed a significant operating margin advantage. General Electric achieved higher sales per dollar of people and purchases costs than did United Technology.