Your Account  •  Become a Member  •  Help  •  Search
 Forums ›› Futures Trading ›› Financial Futures ›› Cme - Income Collapses 42% -

 Page 3 of 3:   1  2   3
 chaykapwr   Registered: Mar 2009 Posts: 613 05-01-12 04:23 PM Quote from Rationalize: I get 10 / 100 as a 10% profit margin. A 5% drop in revenue = 95, and a profit of 9.5 . The drop in profits is 10 - 9.5 = 0.5 As a percentage = 0.5 / 10 = 5%. What am I missing? Fixed costs... You are assuming the fixed costs change with the revenue. Lets assume on 100 sales, the fixed cost are 70 and the variable were 20, then yes the profit margin would be 10%. Now lets assume sales drop to 95. You still have a 20% variable cost rate, but the fixed costs stay the same at 70. Your profit is now \$6, a 40% decrease Edit/Delete • Quote • Complain
 diarist   Registered: Apr 2012 Posts: 6 05-01-12 09:33 PM Quote from Rationalize: I get 10 / 100 as a 10% profit margin. A 5% drop in revenue = 95, and a profit of 9.5 . The drop in profits is 10 - 9.5 = 0.5 As a percentage = 0.5 / 10 = 5%. What am I missing? You are assuming that that 10% profit margin on sales of 100 means that there is a fixed percent profit/dollar. You would thus assume that had the same business had only \$1 in sales, it therefore had a dime profit. Not so ... in all likelihood, the business is losing \$89. What you are missing the concept of "breakeven" - the point at which costs and revenue are equal. If a business has a \$90 breakeven (salaries, utilities, insurance, licensing fees, interest payments, etc.) and it has sales of \$100, then it has a profit of \$10, which,as you pointed out would be a 10% profit margin. If sales drop 5% to \$95, then the profit will have dropped by 50% (\$95 sales - \$90 expenses = \$5 profit/\$10 profit = 1/2 = 50%. I won't get into gross vs. net margin. Let's just say that business is a game of margins. Edit/Delete • Quote • Complain
 diarist   Registered: Apr 2012 Posts: 6 05-01-12 09:34 PM Quote from chaykapwr: Fixed costs... You are assuming the fixed costs change with the revenue. Lets assume on 100 sales, the fixed cost are 70 and the variable were 20, then yes the profit margin would be 10%. Now lets assume sales drop to 95. You still have a 20% variable cost rate, but the fixed costs stay the same at 70. Your profit is now \$6, a 40% decrease Had I read your post it would have saved me a post. Edit/Delete • Quote • Complain
 Page 3 of 3:   1  2   3