On Profit Margins And Why It’s Important Post by Melidaon Nov 08, 2024 9:21am
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GRAHAMB WHY NOT
“One final comment. In Q3 Pyro did a very good job of getting its costs down without negatively effecting operations. And it has gotten its gross margin back over 40%. That's a fact and that's significant.”
OK Melida, and just to to quote the company exactly, here’s what they said:
“The gross profit for Q3, 2024 was $1.7 million or 42% of revenue compared to a gross profit of $1.1 million for Q3, 2023, representing 30% of revenue. The increase in gross margin percentage was mainly due to the decrease on direct materials costs, and amortization of intangible assets.”
The question I put to you Melida, is this:
To say that it is a significant change, and ascribing this to cost reduction , is not completely true.
According to my calculations, approximately half of the reduction, is due to a non-cash item amortization , which has nothing to do with the business operations of the company. Not to mention, we don’t have a idea that those costs are going to be sustainable or repeated. But let’s talk about what we do know.
-after excluding amortization(which was roughly 16,020 2024 and 221,000 in 2023)
- The adjusted gross profit margin for 2023 rises from 29.83% to 35.82%.
- The adjusted gross profit margin for 2024 is 42.20%
This narrows the difference to roughly 6.4 percentage points instead of 13 quoted in the pressor And noted as one of the four major points of the press release.
This analysis shows that nearly half of the perceived improvement in gross profit margin from 2023 to 2024 was due to the lower amortization cost in 2024 rather than other operational improvements.
So, excluding amortization provides a more nuanced view of the company's performance, revealing that the improvement in gross profit margin is less dramatic once you account for that one-time reduction in amortization expense.
Here’s the other part, what about the costs? Were they actually sustainable, or was it a one time event. Again, when this is one of the major improvements, and we can deconstruct it like this, it makes you realize that to me, the issues with the operations of this firm or something that need to be considered.
Again, on my opinion, for entertainment only.