by Zacks Investment Research | February 26, 2014 12:33 pm
This week I want to focus on Sales Growth and Profit Margins. While everybody understands sales, margins might bring up a few question marks.
So let’s start at the beginning: first and foremost, sales are THE most important thing to a company. Everything else stems from that. Without sales, there really wouldn’t be anything else to analyze. And Sales Growth numbers show you how that company is growing.
However, just because sales are increasing doesn’t always mean that profits are increasing too. Sales at the expense of profits does not work. So paying attention to Profit Margins is the next thing we’re going to want to look at.
Margin is simply a ratio and the calculation is: Net Income divided by Sales
So if a company’s margin is 15% for instance, that means its net income is 15 cents for every $1 dollar of sales it makes.
But if a company’s expenses are growing faster than their sales, this will reduce their margins.
In general, a company with increasing margins is becoming more profitable and is better managed, i.e., their costs are under control.
So continue to look at their sales numbers. And of course, look at their earnings too. But take a look at their profit margins as well. Are they going up or down? In other words, are they making more money on each dollar of sales they make, or less? This is important stuff to know, and can make a huge difference in your portfolio’s bottom line.
KORS Michael Kors
UFPI Universal Forest Products
ULTI Ultimate Software Group
WDR Waddell & Reed
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance.
MICHAEL KORS (KORS): Free Stock Analysis Report
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WADDELL&REED -A (WDR): Free Stock Analysis Report
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