Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics)

by Philip A. Fisher

A simpler and often worthwhile method is to make a close study of how much in dollar sales or net profits has been contributed to a company by the results of its research organization during a particular span, such as the prior ten years. An organization which in relation to the size of its activities has produced a good flow of profitable new products during such a period will probably be equally productive in the future as long as it continues to operate under the same general methods.

However, it also becomes clear that the marginal companies—that is, those with the smaller profit margins—nearly always increase their profit margins by a considerably greater percentage in the good years than do the lower cost companies, whose profit margins also get better but not to so great a degree. This usually causes the weaker companies to show a greater percentage increase in earnings in a year of abnormally good business than do the stronger companies in the same field.

The only reason for considering a long-range investment in a company with an abnormally low profit margin is that there might be strong indications that a fundamental change is taking place within the company.

When profit margins of a whole industry rise because of repeated price increases, the indication is not a good one for the long-range investor.

certain other companies, including some within these same industries, manage to improve profit margins by far more ingenious means than just raising prices. Some companies achieve great success by maintaining capital-improvement or product-engineering departments.

Many companies are constantly reviewing procedures and methods to see where economies can be brought about.

None of these things can be brought about in a day. They all require close study and considerable planning ahead. The prospective investor should give attention to the amount of ingenuity of the work being done on new ideas for cutting costs and improving profit margins.

If workers feel that they are fairly treated by their employer, a background has been laid wherein efficient leadership can accomplish much in increasing productivity per worker.

those companies that still have no union or a company union probably also have well above average labor and personnel relations. If they did not, the unions would have organized them long ago. The

One series of figures that indicates the underlying quality of labor and personnel policies is the relative labor turnover in one company as against another in the same area. Equally significant is the relative size of the waiting list of job applicants wanting to work for one company as against others in the same locality. In

The company that makes above-average profits while paying above-average wages for the area in which it is located is likely to have good labor relations.