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Old 05-16-2002, 08:02 AM
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Default the cost of operating leverage



I just heard some guy say on TV how we don't need a huge rebound, in order for earnings to skyrocket. Why? Because companies have enormous "operating leverage."


What this essentially means is that, right now, companies are losing money because their capacity and overhead is too high, no? What is this crap? Why wasn't this guy talking about operating leverage at Nasdaq 5,000?


Or, if they really are poised to operate at just about any flexibile capacity and make a profit - if they have made an art out of mothballing - then how much must that cost??


Next thing, we'll have to have cars with three engines, that run on gas, batteries, or solar power, or something. If they can do it for cheap, I have no complaint.


But I am just suspicious it might be cheaper for counterparties to actually know one another's supply and demand a little better.


eLROY
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Old 05-17-2002, 08:48 AM
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Default Re: the cost of operating leverage



"What this essentially means is that, right now, companies are losing money because their capacity and overhead is too high, no? What is this crap? Why wasn't this guy talking about operating leverage at Nasdaq 5,000?"


hey aint sure what operatin leverage is precisely. capacity utilization from tech companies is low i think. much higher at naz 5000. overhead too high but gettin better. he may be talkin to worker productivity which is increasin. probably means margins are gettin better.


"Or, if they really are poised to operate at just about any flexibile capacity and make a profit - if they have made an art out of mothballing - then how much must that cost??"


inventories low now. if anything need to replentish. companies try to op with as low an inventory as possble. should tell you sumthin.


"Next thing, we'll have to have cars with three engines, that run on gas, batteries, or solar power, or something. If they can do it for cheap, I have no complaint."


yeah sucker born every minute lol.


"But I am just suspicious it might be cheaper for counterparties to actually know one another's supply and demand a little better."


ask john ho he say tech stocks to the moon.


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Old 05-17-2002, 03:18 PM
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Default Re: the cost of operating leverage



Operating leverage in this sense probably has to do with their handle on costs. I would agree they have much better operating leverage today than they did 6 months ago, but I also agree that overcapacity in many places, tech companies especially, is nasty and not going to improve overnight. Operating leverage is just another bit of lingo that corporate puts out to confuse and confound the analyst lackeys and the people who follow this stuff. Just the type of stuff Warren Buffett and others like him always warn about avoiding. The biggest fallacy though is in the theory of earnings as it is. Once again the masses pay no attention to cash flow, just plain vanilla earnings which are always manipulated heavily when you let them pass off lingo like operating leverage.
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Old 05-17-2002, 04:51 PM
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Default since you brought it up



"Operating leverage is just another bit of lingo that corporate puts out to confuse and confound the analyst lackeys and the people who follow this stuff. Just the type of stuff Warren Buffett and others like him always warn about avoiding. The biggest fallacy though is in the theory of earnings as it is. Once again the masses pay no attention to cash flow, just plain vanilla earnings which are always manipulated heavily when you let them pass off lingo like operating leverage."


this is really good stuff man. any thoughts on what might improve the situation. one big reason i think that the bottom line is so hard to judge is govt tax treatment of corps. another is that public companies are wall st. lackeys. these 2 make it hard to get true picture as to bottom line.
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Old 05-17-2002, 09:24 PM
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Default Re: since you brought it up



Government taxation is stupid, but everyone knows that from personal experience. Problem is that taxing corporations is a terrible thing on the surface, but they government is too addicted to its revenues. I work in corporate finance and do you have any idea how many more projects we would do or invest in if we didn't have to take tax expense into consideration? Of course if you do something stupid and it fails you get rewarded in a lower tax bill. Since people don't generally lose money in a year graduated and mandatory taxes are fine, they work. For corporations they are flat out stupid and completely lack good reasoning, but since people love that concept "tax the rich, tax those that got it" well my argument will fall on deaf ears.


As for the analysts we have, they are idiots. Not only do they have a eagle-eye focus on EPS which means little in the gaming industry, but they also have this ridculous belief that they all better fall in line or else. If your earnings are lower than other analysts, what is a ethical company going to do to you? They can try to clear up any misconceptions or mistakes you have, but in the end we can't do much other than hope you buy into our story. If you don't and you give good reasons why not to then the people should reward you if you are right and punish you if you are wrong. Analysts should be more like mutual-fund managers, but they end up being more like PR guys for their covered companies. Sad, but true.
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