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Business Inputs in Financial Analysis

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There are broadly four key inputs essential for running a business, as shown in the chart below. In upcoming posts, we will explore publicly listed companies across various industries, examining and analyzing the key inputs required to drive their sales. 
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Bridging the gap between Gross and Operating margins

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In this post, we’ll explore why some companies, despite having a low cost of goods sold (COGS) relative to their sales , see a significant gap between their gross margin and operating margin due to high operating expenses (OpEx) . Operating expenses, typically include costs like salaries, rent, depreciation, marketing, distribution and administrative expenses. To illustrate, we’ll look at two companies: Prada - A luxury fashion brand Lululemon Athletica – A designer, distributor, and retailer of technical athletic apparel, footwear, and accessories. As a starting point, we took the most recent three years of annual data for both companies. We created a common-size analysis focused on three key performance indicators: revenue, gross margin, and operating margin as shown in the table below. Source: Annual Reports, Our Calculation From this analysis, we observed a significant gap between gross margin and operating margin for both companies. For example, as shown in the table, Lululem...
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It All Starts With The Food

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To begin, we focus on analyzing the business inputs across different industries. In this post, we take examples of companies listed in the food and related space. Our methodology involves examining key factors: Cost of Goods Sold (COGS) Operational Expenditure (Opex) Capital Expenditure (Capex) Change in Working Capital We take the past three years' data and, evaluate the amount of each input required to generate $1 in sales. It is important to note that Capex and M&A may not fully capture the input-to-sales ratio, as they can generate revenue and earnings over multiple years. Companies Included: Thai Coconut (Thailand), Seeka (New Zealand)
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