[gruez]

margins can't be compared to interest rates, because it's comparing revenues against costs. Comparing that with interest rates yields nonsensical results. If you want a proper comparison, you'd need return on capital, which requires you to figure out how much capital is in the gaming division.

[TylerE]

Why not?

If you input $1000 into process A which returns $20, and inputing $1000 into process B returns $30, you'd be insane to invest in process A and not process B, right?

[gruez]

That example only says 3% margin is better than 2% margin, not whether the hypothetical process yields better results than a bond paying 4% (or whatever). If the said process takes exactly 1 year to complete, and requires all the inputs to be provided upfront, then its margins can be directly compared to bond yields, but businesses are rarely that simple.

[TylerE]

It's not hypothetical. Xbox's margin last year was 3%.

[gruez]

See:

>If the said process takes exactly 1 year to complete, and requires all the inputs to be provided upfront, then its margins can be directly compared to bond yields, but businesses are rarely that simple.

Something tells me the xbox division isn't some sort of machine that takes in $x in costs at the start of the year and spits out $1.03x in revenue at end. Capital costs could be higher (eg. game takes 4 years to develop before you can sell it), or lower (eg. you pay foxconn $400 to make an xbox then immediately turn around and sell it to best buy for $450).

[dahinds]

the bond example is a return on your money, the profit margin example is a return on other people's money.