Quotes from Legends: EBIT Margin

EBIT Margins are the Earnings Before Interest and Tax divided by sales. EBIT Margins reflect a company's cost efficiency. An increase in EBIT Margins suggests cost reductions.

Pg 34-36: Does the company have a worthwhile profit margin?......the first step in examining profits is to study a company's profit margin......what is the company doing to improve or maintain profit margin?
Common Stocks and Uncommon Profits by Philip A Fisher, Wiley Investment Classics.

Pg 132: I'd rather have a $10 million business making 15 percent than a $100 million business making 5 percent.
Buffett: The Making of an American Capitalist by Roger Lowenstein, Doubleday.

Pg 218: If the company's costs increase 4 percent, it can raise prices 6 percent, adding 2 percent to its profit margin. This may not seem like much, but if your profit margin is 10 percent (about what Philip Morris's is) a 2-percentage-point rise in the profit margin means a 20 percent gain in earnings......If you find a business that can get away with raising prices year after year without losing customers, you've got a terrific investment.
Pg 220: In a survey I once saw, college students and other young adults were asked to guess the average profit margin on the corporate dollar. Most guessed 20-40 percent. In the last few decades the actual answer has been closer to 5 percent......There's not much to be gained in comparing pretax profit margins across industries, since the generic numbers vary so widely. Where it comes in handy is in comparing companies within the same industry.
Pg 221: ......because on the upswing, as business improves, the companies with the lowest profit margins are the biggest beneficiaries.......What you want, then, is a relatively high profit-margin in a long-term stock that you plan to hold through good times and bad, and a relatively low profit-margin in a successful turnaround.
One Up On Wall Street by Peter Lynch with John Rothchild, Penguin.

Guru Acknowledgements xxx: Peter Schliemann founded private money manager Rutabaga Capital Management. A value manager, Schliemann looks for unloved, underfollowed companies in run-of-the-mill businesses that are going through a rough patch. Schliemann believes in the regression to the mean concept, and seeks out companies with below normal profit margins. He focuses on return on capital as a profitability measure, and seeks out firms with the biggest difference between ROC and cost of capital. Schliemann looks for positive cash flow.
Guru Acknowledgements xxxi: Ken Shea is director of equity research at Standard & Poors. Shea looks for companies with low margins that can improve, and sees slowing revenue growth, as well as big nonrecurring charges, as red flags.
Guru Acknowledgements xxxii: Nancy Tengler is president and chief executive officer of Fremont Investment Advisors, San Francisco, California, and co-portfolio manager of Fremont's New Era Value Fund......For instance, she prefers stocks with analyst coverage and strong operating margins. Tengler's favored valuation ratio is price/sales ratio, not by itself, but compared to the S&P's price/sales ratio, which she calls the relative price/sales ratio. She compares her relative price/sales ratio to historical values and uses it as her primary buy/sell signal.
Guru Acknowledgements xxxii: Thatcher Thomson is a Merrill Lynch analyst specializing in the business services sector. Factors he considers important are revenue visibility, a company's position vis a vis the competition, sales growth and earnings growth, margins, cash flow versus net income, and low debt. Thompson's red flags include negative earnings surprises and/or reduction in guidance, departure of the CFO, growth by acquisition combined with declining margins, or declining cash flow combined with rising receivables.

Gross margin or Gross profit is the difference between Net Sales and Cost of Goods Sold.
Financial Accounting by Libby, Libby and Short, Irwin/McGraw-Hill.