[viandante]

I don't get it. The Chinese guy says they measure "tonnes of money". But if I have an OI of 30%, it will take 100 of sales to make 30 of profit. If I have an OI of 10%, it will take 300 of sales to make 30 of profit.

It looks like the Chinese have problem in making good investments. And I understand that, somebody should always remember that the Chinese is an extremely controlled economy. Maybe that's why they are happy with low ROIs, maybe that's the only thing they can do.

Apparently, my hairdresser understand finance better than those guys.

[ww520]

You missed the essence of his quote. He said don't just emphasize on the ratio, "Americans measure profitability by a ratio." The basis (tons of money) that the ratio is measuring is more important.

Your hairdresser could have a fantastic ROI of 50%, but 50% of $1000/year is miniscule when compared to 10% ROI of a company making $100M/year revenue. If you pursue just the ROI in spite of everything else, your great ROI economy is only $1000, while the other lower ROI economy is $100M.

It's the same question of a small percentage of a big pie vs a big percentage of a small pie. Apparently they like a big pie better despite having a lower ROI. May be it has to do with more people are benefited with a big pie.

[viandante]

Yes, but still it doesn't make sense. If you invest money, you try to get as much as possible from it. Only reason not to do it is State control.

Also, you apparently didn't read my example, which is quite the reason why measuring the percentage is also (also) important.

I still think you guys are missing the point.

[ww520]

I really don't want to go into a piss contest with you, but:

- What you advocate is the problem Clayton's article tries to address. Your approach will kill the goose that lays the golden eggs.

- You emphasize the wrong thing, the return ratio, while other people prefer to measure it in the amount of money returned. That's what get the U.S. auto industry in trouble, as one executive put it clearly: "we spent all the efforts in the bottom line in cost cutting but ignored the top line revenue expansion. It got good ROI in the short term but destroyed the industry in the long term."

- You also missed his other quote, "use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, ... economize on something that is abundant." Think about that for a moment in how to grow a business and why founders raise VC money in return for a lower return rate on their part.

- I am not their guys, as you implied in "you guys."

- Your fascination with State control system has no bearing in this discussion since the Chinese companies in discussion are in Taiwan. If your intent is to prove the Chinese economic system is inferior, you are barking up the wrong tree.

- Even U.S. has government managed economy - the Fed manages the economy via various monetary policies. And the Fed's mandate is not highest ROI. It's to have a robust economy that provides good employment.

- I read your example aplenty. What you don't understand is there're many ways to make money. Having the highest ROI is not the one rule to rules them all. Supermarkets have terrible ROI with razor thin margin yet they make lots of money for their owners. From your rational, everyone should become a hairdresser for its high ROI but no one would create the supermarket business.

Anyway, I've spent more than enough time on this and that's the end of my part of the discussion.