Selected Highlights of "True Profit!"

True Profit is what remains when the company has satisfied all contractually agreed claims of employees, suppliers, banks, other creditors and the state.

EBIT, EBITDA, EBITDAR (R for restructuring), "Core Platform Contribution Profit" (Uber), "Community-Adjusted EBITDA" (WeWork), "Adjusted Consolidated Segment Operating Income" (Groupon) are not true profit!

Profit Margins

Profit margins are 6-7 times overestimated by consumers. Consumers estimate the following net profit margins: Germany 22.8%, actual margin 3.2-3.4%; USA 31%, actual margin 4.9-6%; Italy 38%, actual margin 5.1%.

Net profit margins OECD countries: average 5.7%, high: Russia, Brazil, Switzerland, in the middle: China 6.4%, USA 4.9%, low: Germany 3.3%, Japan 2.4%.

Profit margins in smaller countries are higher. Economies of scale have less influence on margins than intensity of competition.

Fortune Global 500: Average net margin for all countries 6.6%, median 4.5%.

Hidden champions with a net margin of 8% are about 2.5 times better than the German average.

In terms of return on equity, German companies do better in an international comparison. But that comes at the price of higher debt, i.e. higher risk.

The 10% most profitable companies in the world (Apple etc.) harvest 80% of the total economic profit (economic profit = profit in excess of cost of capital)

On the ethics of profit

Nitin Nohria, Dean of Harvard Business School from 2010 to 2020: "The first ethical responsibility of a business leader is to make a profit." Peter Drucker: "There is no conflict between profit and social responsibility. It is not the business that earns a profit adequate to its genuine costs of capital, to the risks of tomorrow and to the needs of tomorrow's workers and pensioners, that rips off society. Wallace Brett Donham, Dean of Harvard Business School from 1919 to 1942: "We want to educate leaders who make a decent profit decently."

Profit maximization is the opposite of waste, one can also say "minimization of waste".

Causes of profit weakness

- Wrong targets (only 28% profit-oriented, 47% volume-oriented)

- Incorrect incentives (e.g. sales commissions, options)

- six times as many managers know the turnover as the profit

- Wrong sector/dominance of mature industries

- Overstretched diversification

- Responsibilities in the Management Board

- Banks are too soft

Logically, the necessary therapies result from these causes

Role of profit drivers price, sales volume, cost

- Price is the most effective. 1% price increase yields 10% profit increase (profit multiplier = 10)

- For sales volume the profit multiplier is only 4

- For cost the profit multiplier is 6

- Speed of profit effect: 1st price 2nd sales 3rd cost

- The Internet affects all three profit drivers

- Zero marginal costs a new and very important phenomenon

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