You’re A Crucial Part of This Team

"I can't fire a broad. Looks like you got the short straw, Justin."

“I can’t fire a broad. Looks like you got the short straw, Justin.”

Another Control Your Cash® patented one-sided conservation question, one-sided since we don’t bog our site down by allowing comments. So you’ll have to answer in the comfort of wherever you’re reading this (home, maybe an airport, hopefully the office – the last of which we’ll elaborate on in a second.) The following question is not, repeat, not, rhetorical:

All things being equal, to the extent that they can be, would you be more or less inclined to work for a company whose official policy includes some variation of the following declaration?:

Employees are our most valuable asset(s).

If you answered ‘More’, there’s lots to unlearn.

“Employees are our most valuable assets.” Think about what that means. The company is profiting off them more than it is off the net receivables, or the cash and cash equivalents, or the property, plant and equipment, or any of the other assets that are supposed to stimulate cash flow and enrich the owners. $45,000 in inventories, if sold at a 100% markup, and subtracting a few dollars for warehousing costs, might realize a profit of $40,000. Meanwhile $45,000 paid to you, the deputy assistant regional manager, might realize a profit of $50,000 if you move enough product and work enough uncompensated overtime to impress the assistant regional manager: the guy whose job you claim you want to have one day.

Any company that tells you that you’re among its most valuable assets and expects you to take it seriously is patronizing you. The kind of employees who are dumb enough to swoon from and find validation in a timeworn line specifically written to make them feel that way are, self-fulfillingly, indeed pretty valuable assets. Because if being told you’re important makes a difference to you, you’re probably underpaid. Because you think you can eat non-monetary, psychological rewards such as compliments.

You negotiate in plenty of other aspects of your life, right? If you comparison shop, then you’re negotiating, kind of. You certainly wouldn’t buy something expensive like a car or a house without looking around and trying to get the seller to come down as much as is prudent. Well, what kind of lunatic determines which supermarket sells the cheapest per-unit laundry detergent, and maybe even uses a coupon, but doesn’t care how many tens of thousands of dollars her employer is making off her? (And then try to whittle that number down a little?)

Your value to your company is measurable. Of that value, or of the revenue that derives from having you around, you keep some and the rest goes to your employer. This is so obvious that it’s easy to miss, yet almost everyone does. Employees think that a salary is a product of an initial round of mediation held during an interview. Some think it’s even less complicated than that, and that a salary is simply what the employer deigns to pay you. It isn’t. Once again, it’s the difference between what you bring in and how much of that the employer decides to pocket. Even Karl Marx understood this, and Marx was one of the most overrated thinkers of all time. (Come to think of it, this was about the only thing he understood.)

Finally, as investors we could give a damn about any company that claims that its employees are #1. Your customers should come first. Well, your investors should come first, but that usually implies having customers. Satisfied ones, repeat ones, as many as possible. Brinker International, parent company of Chili’s, generated $2.82 billion in revenue last year. You know what its “most valuable assets” are? Hint: Not the flair-wearing hostesses and servers, thanks.

The beer kegs. Each one contains about 140 pints, which the restaurants can sell for 3 or 4 times what they paid. Few employees offer that kind of return, and if they could, they’d be crazy not to demand far more money. Beer kegs can’t negotiate. Nor can the soda fountains, which offer an even greater profit margin, albeit on smaller volume.

It’s like politicians who say “children are our most valuable resource”, a proverb which was cloying if inaccurate back when people started saying it in the 1970s, and which should only incur scorn today.

From an employee’s perspective, you want the profit margin on you to be as low as possible. Not so low that it costs money to keep you around – in which case the sensible thing to do is fire you – but low enough that you’re earning a lot relative to your value.

Every commodity – beer, soda, cigarettes, labor – has a markup. People think that the last one shouldn’t be on the list for some reason, or that jobs can’t be quantified and subjected to cost-benefit analysis the same way that non-human assets can. But of course they can. No employee has ever been fired because he made too little money. In fact, the opposite is true. Employees who make “too little” (which, obviously, management would never cop to) are instead held up as emblematic of something larger: the “valuable assets” worthy of mention in the company mission statement. Or vision statement, whichever. Meanwhile, every hour of every day some employees somewhere get fired because management can no longer justify their salaries. Short of stealing company secrets or having sex on the photocopier, overpayment is the #1 reason for being let go.

With the possible exception of pack animals, no asset was ever more valuable than a slave. You got your cotton picked, you got musical entertainment, and you didn’t even have to pay a living wage.

Profit Off The Clueless. It’s Your Duty

 

The French dude in this picture? 27 years old.

 

Ah, les cigarettes. Ils sont magnifiques!

 

 

I think we are inviting God’s judgment on our nation when we shake our fist at Him and say, “We know better than you as to what constitutes a marriage,” and I pray God’s mercy on our generation that has such a prideful, arrogant attitude to think that we have the audacity to define what marriage is about.

(Journalistically abridged version: “Let’s kill all the queers, or at least not serve them.”)

The Chick-Fil-A story came and went, but we’d prefer to take a sober look at its absurdity after a few weeks have passed. People protested, Dan Cathy got assailed, and to the extent that a regional restaurant chain’s management can influence public policy, Chick-Fil-A’s chief operating officer remains committed to the non-marginal belief that marriage is between a man and a woman.

It makes no sense to shun a business because someone said something that hurt your feelings. Your actions either won’t make a difference, or the difference they’ll make will be a negative one.

Take the brief and unspirited Chick-Fil-A protests. What good did they do? That is, what tangible economic benefit did they achieve? How did they make the world a better place?

You could argue that such protests aren’t supposed to provide anyone with an economic benefit, they’re supposed to do the exact opposite to the targeted parties.

But a month later, Dan Cathy is still rich. Say the boycott had worked, to the extent that a few restaurants ended up closing. The company’s franchisees, most of whom have far less money than Mr. Cathy, would have suffered far worse than he. Any affected employees would have suffered even worse. All because a man whom you have no connection with, and who has an extremely modest impact on the crafting of marriage laws, gave his Biblically consistent and majority opinion as to what defines a marriage.

Dan Cathy could have said the Armenian Genocide was The Awesomest Thing Ever and it shouldn’t have made a difference to anybody. The actual business of serving chicken sandwiches isn’t connected to the opinions of the guy in charge.

Legitimate reasons for boycotting Chick-Fil-A:

  • They boil chickens alive.
  • The secret ingredient in the Polynesian sauce is toxoplasmosis.
  • New seasonal pricing – $300 a sandwich.

That’s it. Making a decision based on anything non-galline is part counterproductive, part foolish. And attempting to assess the values of the people in charge is 100% hypocritical. Either that, or every pot smoker who protested Chick-Fil-A must buy exclusively from pro-gay-marriage dealers.

Boycotts temporarily satisfy. (“Delta kept us on the runway for 3 hours. I’m never flying that airline again!”) Three months later, when you need to fly to London and Delta’s prices are hundreds of dollars cheaper than Virgin’s or American’s, your mind will probably change. That being said, almost all of us are guilty of this.

For instance, your humble bloggers refuse to do business with a local Toyota dealership that uses Michael Vick as its spokesman. It’s a 2-person boycott that will have a negligible impact on the dealer’s bottom line. We don’t expect other people to join our passive protest, although we can’t fathom why anyone would patronize a business whose management could have chosen any of 1500 active NFL players to hawk its products yet went with a convicted felon who did to dogs what Josef Mengele did to Jews.

So we established our position. Now, how far should we take it? Should we never buy a Toyota nor a Lexus from anyone anywhere, because how can we do business with a corporation that would grant a dealership to someone who would hire Michael Vick?

That same dealership’s vendors include companies we do business with – a couple of local radio stations, for instance. Should we refuse those companies’ money? If so, what about the radio stations’ vendors; their catering company, for instance? Are 2 degrees of boycott sufficient? How about 3? Where does, or should, it end?

We know a former vegan who quit and reverted to omnivority. Why?

It was too hard. She couldn’t eat beef or pork. Okay, fine. She couldn’t eat chicken. Yes, that’s how herbivority works. She couldn’t eat eggs or fish. The culmination happened when she refused a plate of pasta served with an anchovy sauce. The dish was 1% meat, but that was enough to taint it. At this point her hair had started falling out, and her skin had the pallor of a corpse. (She also smoked cigarettes, reinforcing that her restrictive diet had little connection to health.)

Which brings us to the most profitable company in America, as measured by return on shareholders’ equity. The difference between this company’s assets and its liabilities is $229 million. Which is equivalent to the profit it makes every 10 days.

Almost half the cigarettes sold in the United States come from Philip Morris International. Dividing that into the American Cancer Society’s figures, that means the company kills 217,000 of its own satisfied customers every year. (Of course, that’s a semantic mistake. The 217,000 kill themselves. Philip Morris only sells them the weapons.) That’s to say nothing of the myriads more around the world who die courtesy of Philip Morris cigarettes.

Philip Morris International pays a $3.08 dividend annually. That’s a 3.4% yield, which is excellent. (And remember that the lower that yield is, the higher the stock price is, which is not exactly a bad thing.)

Chick-Fil-A feeds people. A day without lunch is a miserable day indeed. Philip Morris International, even if its CEO were to register as a minister with the Universal Life Church just so he could marry as many homosexual couples as he can find, still sells death. His products have no worthy purpose, and do nothing to better the species nor our surroundings.

They’re also a fantastic buy. Philip Morris International has a diehard customer base, if you will, with hundreds of thousands of budding smokers waiting to take their place once the former check out. For every one who quits, plenty of others never do, taking their brand loyalty to the grave. Refusing to invest in the company that gives said consumers a reason to die is high-mindedness that leaves cash on the table.

Anheuser-Busch, too. Same thing. Last year, an $8 billion profit on $39 billion in revenue. Selling a product that numbs brain cells, impairs judgment and causes far more problems than it solves. Should we take the noble road and not purchase its stock?

Whatever for, if it continues to turn increased profits and pay regular dividends? It only does so because people like to get drunk. Millions of them. Are we going to do our best Carrie Nation, standing outside 1 Busch Place in our finest black bloomers, espousing the moral rectitude of temperance? Doing so wouldn’t convince a soul. As long as smokers and drinkers (and chicken sandwich eaters to a lesser extent, although Chick-Fil-A isn’t publicly traded) want their fix, someone’s going to get a cut of it. Why not you?

If your answer is “because I’m better than that”, good for you. We’ll let you know when your local organic yoga mat workshop does its IPO.

Size Matters. But Define “Size”.

The logo of the former largest company in the world, the East India Company. Graphic design was not a priority in the 18th century.

 

Quick, what’s the biggest company in the world?

If you’re a casual reader of the business news, or were last summer, you might say “Apple”. It was something of a noteworthy deal when Apple moved into the top spot, but what does that top spot signify? Does it mean that Apple sold its products for more money than anyone else did? That its owners got richer than anyone else did? That its owners would get richer than anyone else, if they liquidated their interest? Or something else? Are we thinking too hard about this?

Yes. The biggest company in the world is the one that generates the most revenue.
Isn’t it?

Sure, but what if there’s another company that generates slightly less revenue, but has significantly smaller expenses and thus keeps more of the revenue as profit?

Uh…yeah, you’re right. That’d make more sense. 

But isn’t value in the eye of the beholder? Say there was a company that took in even less revenue, and didn’t necessarily turn a stupendous profit. But, investors loved the company so much that they valued its stock highly. And if you wanted to buy this entire company, share by share, you’d have to spend more than you would to buy any other company.

Okay, you sold me. That should be the definition of the world’s largest company. There can’t be any other ways to interpret this, can there? 

CAN THERE? 

Well, how do you determine your own net worth? You add the assets and subtract the liabilities. Do the same thing on a macro scale and you have a company’s shareholders’ equity, which should be the definitive, absolute, certain way to determine a company’s magnitude. Aside from the other ways we just mentioned.

Okay, time for the real-world results.

REVENUE: The company that takes in the most money is Walmart. Last year, that meant $421 billion.

Walmart makes money on volume, not margins. Anything you buy at Walmart, Walmart bought for only a little bit less. Walmart doesn’t turn big profits on any individual item – the Birkin bag that the retailer buys for $45 and then turns around and sells to you for $20,000 isn’t on the shelves at Walmart. But the nickels and dimes that Walmart makes on every grocery item and article of inexpensive clothing keep its profits huge and its shareholders happy.

Which means Walmart spends tons on what it buys. It turns a profit, and a substantial one, but not as big as at least one other company’s.

PROFIT: Apple made $26 billion last year, despite selling a lot less than Walmart. How? Because while Apple sells less than Walmart, the profit on each item Apple sells is far, far greater than on what Walmart sells.

Last year somebody estimated that it costs Apple about $180 to make each iPhone. Meanwhile, new unlocked 4S models with 64GB of storage sell for over $800 on eBay. It’s hard to imagine a single product that Walmart makes a $620 profit on. Except the iPhones.

For the record, when Apple was announced as the largest company in the world in the summer of 2011 (or more to the point, when news of its financials trickled down from the business news departments to their knuckle-dragging counterparts on the general news desk), it wasn’t because of Apple’s profits. It was because of another metric.

MARKET CAP(ITALIZATION): Apple had the largest market cap in the world for a few weeks earlier this year, but ExxonMobil then caught up and regained its place on top. As of this writing, Apple has wrested the title away yet again. Right now, if you wanted to buy every share of AAPL it’d cost you $480 billion. That’s about ⅙ more than ExxonMobil.

Which leaves one remaining measure.

EQUITY: The company with the biggest difference between its assets and its liabilities is Bank of America, whose shareholders’ equity sits at around $228 billion.

Most of the top companies in shareholders’ equity are banks (both commercial and investment) and insurance companies. A major chunk of their assets come in the form of loans. What you and we sweat over, banks get excited by. Loans are their stock in trade, which sounds like an obvious point but is easy to forget sometimes.

How does this apply to your daily life? Well, to the extent that it forces you to think of multiple valid ways to look at the same problem. Who’s in a better place – the person who makes $150,000 a year, or the one who makes $120,000 and clears $60,000 after expenses while the first person spends every penny and then some? It’s a legitimate question, not a rhetorical one. And once you’ve determined an answer, how does that person stack up against someone who makes $70,000, but has a net worth of $5 million?

More money is better than less: if you don’t agree with that, you probably shouldn’t be reading our blog. But there are multiple ways to determine who’s in the most enviable financial position.

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**Carnival of Financial Camaraderie #26**