Forum Post: Sustainable Business Models
Posted 13 years ago on Dec. 1, 2011, 7:13 p.m. EST by midwestpatriot
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Though OWS hasn't identified it yet, this is a movement about sustainable business. Long term companies cannot make in low cost countries and sell in high cost countries and give the difference to owners before the owners have all the money and workers everywhere are broke. So how do consumers judge if they are buying from a company engaging in sustainable business practices? I'll give some ideas in my next post.
Ideas to measure companies you buy from by (think a "dashboard" and "benchmarks": ratio of earnings and senior salaries to revenue, ratio of top management annual comp to average workers comp, % value added excluding earnings and sr mngt in the consumer's country, tax % paid in the consumer's country. I'd love to hear other thoughts.
At risk of making myself look like a real nerd:
If you have a bit of time on your hand check out investor relations section of a corporate website and find their latest annual return (that is the only one actually audited).
The Management Q&A section is company propaganda, its not very reliable but it gives a bit of an idea what the company is up to. For example, Goldman Sachs thought 2011 was going to be a fantastic year for the economy.
The real picture is when you look at the audited financial statements (not just the highlights but ones after the signed audit report), plus the mandatory notes which follow.
If it is a retail store you are curious about, look at the statement of revenue and compare Cost of Goods Sold to Net Sales, e.g. Last year Walmart sold 400B of goods/services, and the goods/services it sold cost 300B 25% profit margin. (COGS includes warehousing and transportation costs all the way from China, plus what they paid for the productt).
They still have to pay their staff, rent taxes, etc. out of there of course, but at the same time 25% gross profit is still not bad when you consider all the warehousing costs, logistics costs, and Shipping Costs which are required to import their goods from China and ship them to stores.
As much as I hate Walmart only 7B Profit off 400B in sales means most savings are passed on to consumers; but a large difference between COGS and Net Revenue on a financial statement would be a bit of a red flag.
For a service firm, check out Goldman Sachs:
http://www2.goldmansachs.com/investor-relations/financials/current/annual-reports/2010-ar-pdf-files/GS_AR10_Allpages.pdf
Take a look at page 92: For 2008-2010 if you compare Compensation in the expenses section to Net Income it shows quite clearly that employees have made more money than the company they are supposed to be running... for 3 years in a row!
Note 17 on p.194 is also interesting, it would appear that $9,089,000,000 in additional compensation is still owed to Goldman employees, but has not been paid out yet.
This is parked in "other liabilities" on the balance sheet so it does not have to be declared as an expense, and its hidden quite well, right before the massive list of ongoing lawsuits. You have to look at note 1 to see which items in the financial reports have additional information attached in notes.
People talk about OWS having a sense of entitlement... but these guys are paying themselves more money than the business itself makes, let alone the much smaller sum they pass along to their shareholders in the form of dividends.
Thanks, interesting. When Goldman went public it didn't make sense to me, that type of business is inherently a partnership, you just corroborated. As to Wal-Mart, yes the savings are passed to consumers, that is why clothes cost me less than in the 70's, but eventually that game is up and the unsustainability of selling across country economic gradients becomes apparent. Your post on Wal-Mart makes me realize that checking something like Glass Door is also important in being a good consumer, since even if Wal-Mart's bottom line margin isn't ridiculous, we shouldn't support companies that actively don't pay a living wage and counsel employees on how to get food stamps or force chinese workers to pay for dorms whether they live in them or not. I live in Michigan, I started five years ago trying to buy from people I know, then I can judge at the front line. The tough part is electronics (young people should really push this) and clothes. I've decided to find a seamstress and at least have a couple things a year made locally. With the high % automation now in textile mills, clothing manufacture and electronics, it is our regulatory environment, labor laws, taxes, etc.. that keeps companies manufacturing overseasrather than on-shoring.
Well thanks for Glass Door, I didn't know such a thing existed but it's really sweet.
Defiantly unsustainable, I imagine that Walmart made big bucks at one time but now everyone buys overseas so they maintain an edge by technology and exploiting their workers; it will be interesting to see what happens if China ever lets its currency rate fluctuate.
Handmade stuff is so much nicer... :) I think people have gotten lazy and forgot how sweet it is to have things which are not mass produced.