Breaking Down The PIA Ratios --Dickeson
Mostly Ronnie Davis and the rest of us speak a language called EBITDA or some variant thereof. (Earnings Before Interest, Taxes, Depreciation and Amortization. Please note that the word "profits" has vanished.) Now the stock market doesn't believe that even EBITDA represents the value of a company so it multiplies EBITDA by a number called a P/E ratio—a "predictor" of future earnings—to arrive at a value of the equity of a company. Divide that result by the number of outstanding shares to determine a share value. What does that have to do with "Net Profits?" Nada.
Thirdly, with a universe of 45,000 printers, we're talking small businesses here—family businesses. The last thing we want to do is pay taxes on income or otherwise. We're providing a living for dad, mom, kids and relatives (some of whom actually work in the shop and some who kinda work—now and again.) Net Profits means taxes. Net Profits and taxes are to be avoided—not evaded. Does this happen? Tell me something I don't know.
If you're a printing company with publicly held stock being traded on the open market you love Net Profits. They get converted to EBITDA and then multiplied by a P/E ratio to give you that lovely on-paper-millionaire feeling as you drive around in your leased Jaguar.
Now where are we in our annual rites of spring? Do we toss our PIA Ratios Studies in the trash? I wouldn't. They're all we've got. Some time ago, PIA and Margolis shifted to an emphasis on VA—Value Added. Very smart move. Value Added is sales less material, including buy-outs. It was a smart move, but PIA and Margolis apparently overlook just how canny they were by reporting both sales and materials to arrive at Value Added. Deduct materials from sales and all of the rest of the costs are the expenses of conversion—converting raw materials to printed products.