"Selling water for huge profits": Don't be biased by "the original sin of profits"
■ Observer
"The theory of selling water for huge profits" seems to be supported by data, but in fact it is a one-sided view that does not understand the laws of the market. There is no need for the public to be biased by the pan-moralized "original sin of profit" argument.
In the past two days, the "selling water profiteering theory" that "selling water is a profiteering industry" has emerged in the public opinion field.
The direct touchpoint of this kind of argument is that Nongfu Spring, which was established in 1996, was listed on the Hong Kong Stock Exchange on September 8. The first day of listing rose sharply, and its market value exceeded 440 billion Hong Kong dollars at one time. The founder Zhong Suanquan was there for half an hour. "China's richest man".
In the era of "high-tech" and "Internet" labels, it is indeed a bit surprising that simple "water movers" can be so popular.
Since then, some netizens have moved out the super-high gross profit margin data of other brands of beverages: such as the gross profit margin of "water-related products" such as Moutai, Coca-Cola, Haitian soy sauce, Yili, etc., and concluded that "selling water is a huge profit industry." The conclusion.
This is not the first time public opinion has hyped up the huge profits of certain companies or industries, and it certainly won't be the last.
But in fact, these "extraordinary profits" are not necessarily scientific.
Every time the hype about "windfall profits" always focuses on one indicator-gross profit margin.
In particular, the gross profit margin of 50% or more at every turn looks very attractive, and it is easy to be misunderstood as "making 50 cents at a cost of one dollar."
But in fact, gross profit margin does not directly reflect the true profit of an enterprise, which can be confirmed by its calculation formula.
Gross profit rate = gross profit / operating income × 100% = (main business income-main business cost) / main business income × 100%.
From an accounting perspective, the "main business cost" does not include corporate costs such as taxes, "sales, management, and finance" sales expenses, management expenses, and financial expenses.
In the application of financial analysis, gross profit margin only reflects the value-added range of the product, not the true profitability.
What is more directly related to true profitability is actually the net profit margin, which is usually listed together with the gross profit margin in listed companies and industry analysis reports.
However, these hype "corporate profiteering" messages are more enthusiastic about using gross profit margin, and either understate or deliberately ignore net profit margin.
The reason is nothing more than that the figure of net profit margin has shrunk greatly compared to gross profit margin, which is not "mad" enough.
Of course, the "water industry" can make money, and if it doesn't make money, no one will sell it.
China has a large population and a large market, and the profits of the "water sales industry" are higher than the global average. This is also normal.
But if it is said to be "extraordinary profits", it is really hard to talk about.
Under normal circumstances, the few leading companies at the top of the industry have obvious advantages in gross profit margin and net profit margin by virtue of years of brand accumulation and scale efficiency.
Then, the gross profit and net profit margins of the industry's backbone enterprises and ordinary enterprises declined sequentially.
Finally, there are loss-making companies on the edge of the industry. The existence of these companies is the result of market trial and error.
The speculator listed the leading companies in the industry segment separately to prove that the certain industry is a "profiteering industry", which is very confusing.
This is like posting the results of the first-placed students in a school as the average grade of the school for the whole year, and then saying "this is the best school in China".
The direct source of corporate profits is indeed the purchase price paid by customers, but the profit margin of the company can only be obtained from improving operating efficiency.
Nongfu Spring or the two major cola, even if they have a market advantage, they cannot easily raise prices in order to obtain more profits.
That will not bring them more profits, but will only cause loss of customers and decline in sales.
Under a full market competition environment, it is difficult for mature traditional industries to have "great profits".
The view that companies are making profits is even more wrong, thinking about business logic too simple.
All in all, the healthy development of physical enterprises is related to the employment and livelihoods of hundreds of millions of people. Supporting physical enterprises cannot be empty talk.
What ordinary people can do is to be more kind to the enterprise, to be more willing to see economic rationality, to abandon paranoid ideas such as "the original sin of profit", let alone be fooled by the hype of "extreme profits".
It is not easy to talk about economic phenomena with the logic of the market, and it is not easy to be biased by the pan-moral argument of "the original sin of profit". It does require a high level of cognitive threshold, but such rationality is worth having.
□Guan Buyu (Columnist)