"Now, which do you think is the more accurate measure of the
value of a company?  How on earth could less information about a company tell you more about it?"

Before I answer this with an example do you really want to stand by this?

Can't be bothered to wait.

Company 1:
Sells 10,000 units a year at £100.
Cost per unit is £99, chiefly because they pay their staff extremely generous wages.
Turnover = £1 million
Profit - £10,000

Company 2:
Sells 100 units a year at £500
Cost per unit is £400.  They pay their staff very low wages.
Turnover = £50,000
Profit = £10,000

Profits are the same.  In your world these companies are presumably identical.  I assume you would pay the same for either company.

Question:  Which company do you think has FAR better long term prospects?

I can come up with numerous examples which make your statement on profit frankly niave.  R&D?  Bonuses?  Capital investment?  Sunk costs?

java, in all seriousness I think you're confusing PLCs with SMEs, the latter just dont survive using your barometers.

"java, in all seriousness I think you're confusing PLCs with SMEs, the latter just dont survive using your barometers."

Nor do they survive on your barometer of profit as I'm sure you know being a businessman yourself?  We'll take 60 days to pay.  Now we'll take 90 days to pay.  Cheque is in the post.  Oops someone has gone bust etc etc etc.

If you have a higher turnover, you are more insulated from cashflow issues imo.

Java     07 Jun 12 12:44 

...........but plenty of profitable companies have gone bust.



..............are you on drugs

I go a bank and borrow £ million. With the £ million I purchase 10 cars at £100,000 each.
I then sell these cars for £50,000 each.

When I return to the bank for another loan and explain how I have built up a £500,000 turnover company in the space of one hour.

Will they look at me favourably or not?

"java whats up with you today? If you have a high turnover but you are losing money it means your outgoings are higher, payment terms are irrelevant"

Blackburn - we're going round in circles.  If I am in year 3 of a business and have managed to get a turnover of £1 million but am losing money because of sunk start up costs being amortised (for example) then I am still in a good position.

If you discount future projections of this business it will likely be far more valuable than a tiny profitable company.  Furthermore the bigger turnover business will have far lower risk to cashflow problems than the smaller profitable one.

java I'm sorry but you are miles out here.

If you start a company and are losing money in 3 years the bank will get jittery and you'll have problems with overdrafts etc. That means you cant pay suppliers and wages and then the problems really start.

With the greatest respect, it seems you have no idea how millions of SMEs are run.

"If you start a company and are losing money in 3 years the bank will get jittery and you'll have problems with overdrafts etc. That means you cant pay suppliers and wages and then the problems really start.

With the greatest respect, it seems you have no idea how millions of SMEs are run. "

Where have I ever said I'm relying on overdrafts?  Plenty of businesses have sunk costs which are funded from the original share capital.  Do you really think a loss making business in it's infant years is by definition not able to pay suppliers?

You seem to think I am arguing that a company can run at a loss continually.  I am not.  I am simply saying for a given year in isolation then turnover is more pertinant than profit, assuming the company is run on a rational basis.

"java, it is clear you have never worked in an SME let alone run one"

This comments aren't helpful.  I've worked for small companies for the last decade in senior positions, and I can tell you for a given year we'd rather have significant ongoing/repeat business on the books in a given year than focus on turning a tiny profit.  Obviously over the medium term we need to show a profit over the entire period, but we are happy to sacrifice short term results for longer term benefit.

"After 3 years if this continues you and I are in debt as we haven't drawn wages and the bank will realise we cant cut it so will call in the debt, which will probably be secured against our homes. The press we bought has depreciated and as a going concern the business has little value."

You haven't read what I have posted.  Let's stay with your year 1 scenario, but assume that by year 3 we have boosted turnover significantly and projections are that these sales will continue to rise next year. We are making profits off these sales and drawing a salary.  However due to loan repayments, salaries and depreciation of the machine we are still showing a small loss in the accounts.

Can't you see this business is doing well even though it shows a loss in the accounts?  Why?  Because it's turnover is increasing year on year.  It is clear that this business will make a lot of money in years 5/6/7.

well - I think your point actually backs me up.  If a financial firm is running at a loss in year 3 then you might well ask questions, but a manufacturing firm might have a lot of plant it bought day 1 and which is still depreciating in their accounts thus they may show a loss for a year even though they are actually improving significantly and are a highly viable business.

by the by feck off comrades this thread is about lying politico scum.

BB - the capital costs of a lawyer are many.  Premises, (remember we are usually in prominent positions), relatively highly paid support staff, insurance, professional subscriptions

Yep, exactly the same as every other business. Of course most other businesses aren't funded by public money ie legal aid.

Solicitors are just hairdressers in suits but not as interesting or attractive

Yeah but its all feeding on misery isn't it, death, divorce, planning disputes, its not as if you do anything useful like cut hair or fill teeth. People only use you because its illegal not to.

Im not sure thats true in every case, divorce etc

Java     07 Jun 12 13:16 

Whether the money is actually received from a sale is a irrelevant.  Yes you have bad debt provisions, but these may be insufficient, thus a company can become insolvent when it shows a profit in the accounts.[/i]


I'll use another, admittedly ludicrous example. A company manufactures millions of widgets costing millions of pounds to produce. They sell these widgets to several companies, who. For whatever reason all fail to pay for any of the widgets received.

So by your reckoning even though the business has not received one penny, it is still profitable?

Your not an economist by any chance are you.

Since when has it been illegal to represent yourself brevikblackbun? Should those other misery feeders like doctors and nurses be chucked in the skip too?