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We went back and ran an analysis on the cash-to-assets ratio of companies that did really well in these kinds of environments, even when they were small. We found that the discipline to have a very high cash-to-assets ratio showed up early in their history. And if we do that, we can’t help but grow revenues per fixedcost.
Capital-intensive factories have a high-fixed-cost, low-variable-cost operating model. If you greatly reduce the production volume, the cars that do come out have to absorb more of the fixedcosts, and that eventually sends the product into a profitability death spiral. Given the shift in immediate U.S.
The second is that the asset underlying the leverage holds its value. As leverage accentuates the profit when asset values rise, it decimates return when values fall. Regardless, a financing component adds another fixedcost. However, there are two conditions necessary for financial leverage to actually become power.
Management has made promises to senior executives about what a project will achieve, and fixedcosts have built up because they looked prudent in comparison to planned revenues. Good portfolio plans will balance the types of risks assets are exposed to, and they may have holdings with different levels of liquidity.
In many industries, the capital required to build an asset of minimum efficient scale is growing. For instance, the cost of building and equipping a leading-edge semiconductor fab has climbed to $7 billion, as the technology required to make more advanced chips is getting more complex. Model 2: Asset capacity pooling.
The costly and complex operations of transporting energy have made utilities natural monopolies, while regulatory barriers and the high fixedcosts of building and maintaining regional electrical grid infrastructure have also kept much competition at bay.
Evidence of this pressure is starkly captured in the return on assets (ROA) for all public companies in the US since 1965. They have systematically and significantly eroded barriers to entry and movement on a global scale. The result is relentlessly mounting performance pressure.
For example, a divested business may inherit assets and capabilities that have been starved of investment by its former parent. The insiders bring a detailed understanding of the company’s assets, capabilities, customers, competitors, and stakeholders. Does the business have a complete, balanced, and cohesive management team?
During an economic crisis, the exaggerated decline in orders can be especially damaging to upstream suppliers that have high fixedcosts tied to production assets. This phenomenon has been documented in the consumer-packaged-goods , food , semiconductor-manufacturing , and other industries.
Imagine eliminating all of the redundancies in fixedcosts. America’s foundations are sitting on a trillion dollars in assets. Consolidating databases and information and talent. Imagine the strength of the acumen and the voice. Imagine the sense of pride it would engender. ” people will say.
For example, a decade ago, it''s unlikely that small-business owners would have told you that they needed a flexible way to host data and applications, one that preferably turned the fixedcost of computer hardware into a variable cost of renting capacity. When the company rides an enabling trend.
However, firms can efficiently increase margin growth without much revenue growth by managing to squeeze out their fixedcosts to service the same level of output. McKinsey’s margin growth measure classified firms that report higher earnings growth than revenue growth as myopic.
As Marshall Van Alstyne, Geoffrey Parker, and Sangeet Choudary articulated recently in HBR , “With a platform, the critical asset is the community and the resources of its members.” On any given day in America, 40% of hospital beds lie empty, their enormous fixedcosts weighing heavily on the system.
The advantages that hospital systems can derive from scale fall into four groups: Classic economies of scale focus on lowering the cost per unit of care delivered (e.g., Economies of scope can allow hospital systems to leverage their scale to develop new revenue streams.
Congestion, rather than raw usage, is the key driver of this phenomenon; given that the Internet Service Provider network is largely a fixed-costasset. Like any fixed-costasset, such as the Interstate highway system in the U.S., it is cheap to operate and expensive to upgrade.
Congestion, rather than raw usage, is the key driver of this phenomenon; given that the Internet Service Provider network is largely a fixed-costasset. Like any fixed-costasset, such as the Interstate highway system in the U.S., it is cheap to operate and expensive to upgrade.
Examples include an external management consultant who advises companies on improving efficiency or a cybersecurity consultant who helps organizations protect their digital assets. For example, a finance graduate may join a structured training program for asset management at a bank. Salary format: A stipend or low salary.
Such narrowly focused conditions would be far less intrusive than the forced sale of some assets or outright rejection of the deal–remedies whose very existence would torpedo a broader legal challenge.
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