What is the company doing to maintain or improve profit margins?
- Past profit margins provide a basis for analysis, but the investor should be most concerned with future profits.
- When profit margins of a whole industry rise because of repeated price increases, the indication is not a good one for the long-range investor.
- The investor should give attention to the amount of “ingenuity” of the being done on new ideas for cutting costs and improving profit margins.
- Companies that are the most successful running an efficient business build up an arsenal of best practices and generally continue to operate with a high-degree of efficiency going forward.
- These companies offer the best long-range investments.