Looking at the Numbers — Dickeson

Profit Leaders in the PIA (Printing Industries of America) Ratio Studies for the Year 2000 were the top one-fourth of 785 printing firms reporting. In this upper quartile were 198 companies with the highest reported profits for the year.

The remaining 587 companies were the lower three-fourths of the total. It may, or may not, be a “representative” sample since the 785 reporting companies weren’t randomly selected. But we do have a large enough group of companies to be deserving of comment and study. The table shows the key figures.

Item All Firms Upper
Lower 3
Sales 100.00% 100.00% 100.00%
Materials/DOAs 35.97% 35.72% 36.22%
VA/Contribution 64.03% 64.28% 63.78%
Oper. Expense 56.46% 49.36% 63.56%
EBITDA 7.57% 14.92% 0.22%
Number of Firms 785 198 587

In place of “Profit,” the Earnings Before Income Taxes, Depreciation and Amortization (EBITDA) is shown. As many are aware, the definition of profit has become so sophisticated that it’s now called an “accounting opinion.”

The “EBITDA” is growing in acceptance as a value closer to cash results of the operating performance of companies. In place of “Gross Profit” or “Value Added,” sales minus materials is called “contribution.” Although value added and contribution appear to be identical, gross profit isn’t a counterpart of these two.

Gross profit is a general ledger term that includes a deduction for manufacturing expenses. Are we quibbling about inconsequential differences? No, we’re simply recognizing profound changes that are occurring in other industries and in the thinking of modern management students.

Remarkable, isn’t it, that materials costs for the upper quartile (198) and lower three-quartile (587) companies are so nearly identical? Just a half percentile less for the upper 198. Does this mean that all 785 companies, on average, priced their services at 2.8 times the cost of materials? This appears to be the case.

I suggest that you check this for your company. Just divide your sales by materials. In this group of 785 companies, the average printer had materials equal to 36 percent of sales.

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