Friday, May 27, 2005

Scroogeview: More Profits, Same Sales

Scroogeview: More Profits, Same Sales

Leave it to a CPA to understand operating leverage. Other investors would do well to gain an understanding of leverage.

As LJ points out, there is more leverage in the system than financial leverage. The current situation is that companies are increasing profits without increasing sales.

This point is very similar to a point made by Professor Jeremy Siegel; fast growth is not as important as how much you pay for growth!

In this Bull market, the economic growth is reasonably good but the profit growth is outstanding; analyst continue to be surprised and they have been forced to raise their projections of profit growth.