Apple & Samsung capture 103% of handset profits as rivals lose money - Page 3

Quote:

Originally Posted by jragosta 


Unfortunately, you failed math. Each company A to D made $10. Since the total profit was zero, the percentage is undefined ($10 / $0 is undefined).

That's our whole point. Company A made $10 in profit but you're saying that they're profit is undefined. $10 in profit (or in this case 25% of all profits) is NOT undefined. It's absolutely a defined and definitive number that can be presented in a defined and definitive percentage.

And for the record: YES, APPLE AND SAMSUNG MADE MORE PROFIT THAT THE INDUSTRY AS A WHOLE. I don't disagree with you for a minute.

But, my simple point is that Apple and Samsung did not make more than 100% of of total industry profit because total industry profit does not include losses.

Look, I get your point. Don't get me wrong. But there is no meaning behind the "103%" of profits in this article. Taking Apples and Samsungs profits, adding in others' losses, and then dividing the first by the second absolutely gives you 103% but it means nothing. It's not a real, meaningful percentage. It's just a percentage.

The actual headline should say: "Apple and Samung capture 99% of handset profits."

Quote:

Originally Posted by SolipsismX 


Note the use of the word DIFFERENCE. This means that it also registers negative values.

 

Loss: "the amount by which the cost of a business exceeds its revenue".  There is a distinct difference between profits and losses.  Profit implies a "gain" and loss implies ... well... a loss.

Quote:

Originally Posted by anantksundaram 

Surely, an accountant would understand that Net Income can be a negative number.

 

If Net Income is not equal to "Profit" what would an accountant say the latter means?

 

PS: An accountant would also know that that they are --more often than not -- called Income Statement or Statement of Operations.

Net income can be negative.

Profit cannot be negative.

Losses cannot be positive.

Accountant's used P&L statements everyday, which are different from Income Statements. But, only accountants would know that.

Quote:

Originally Posted by KDarling 

 

It would've also been helpful if they had indicated how they came up with Apple's handset revenue / profit numbers.

 

 

You're right, they seem to have included it all, which is incorrect.   Samsung's own press release gave us more detail:

 

"The IT & Mobile Communications – comprised of Mobile Communications, Telecommunication Systems, Digital Imaging and Media Solution Center businesses – posted operating profits of 5.44 trillion won on 31.32 trillion won in revenue for the period. Out of the total IM earnings, the handset-making unit claimed 27.23 trillion won in revenue in the October-December quarter."
 

Okay, so we know that the handset unit alone made ~$25 billion in revenue.  

 

The handset unit revenue was 87% of the total IT&M revenue. If the operating profit ratio is the same, that's .87 * $5 billion = ~$4.35 billion handset operating profit.

Sure, let me help you. Using the same methodology you show for Samsung (which, btw, you agree has operating income <$5B, which is exactly what I said in my original post).

Let's take 4Q12, for example. Apple's segment reports show us iPad + iPhone revenue of $41.33B. Apple's operating margin is 31.57%. If the ratio is the same, estimated operating profit = $13.04B. Note: That is actually higher than what the article says it is, without even counting iPods (many of which are connected mobile devices too!).

Got it?

Quote:

Originally Posted by anantksundaram 

Um, no. The industry profit in your example is $0. Period. At least, that is what any investor who owns, say, an industry ETF would say. Or any halfway credible academic doing research at the industry -- as opposed to the firm -- level.

 

People passing off as accountants and lawyers and printers here don't appear to grasp that basic point. Perhaps understandable, because their clients are firms, not industries.

Actually nope.  I have friends that do this type of thing in their day job in Chicago (you know.  The Ph.D. in math types hired by trading firms) and they specifically look at the profits within an industry separately from the losses within the industry. They are modeled uniquely across calculations.

Quote:

Originally Posted by wakefinance 

You and jragosta are saying that in order yo determine Company A's share of the profits we make the following calculation:

Company profits/total industry profits = $100/$0 = infinity.

First, the probability that, in the real world, industry profits would total exactly zero is perhaps zero (or close to that). So, it's kind of moot other than in its attempt to be clever.

Second, I can't speak for jragosta (although I suspect he might agree), but I would VERY comfortably say that the company had more than 100% of the industry profit (= Net Income).

Quote:

Originally Posted by GadgetCanada 

AccountingInsider...this comment section has gotten out of control

Then read some other 'comment section'?

Quote:

Originally Posted by SolipsismX 


So anytime any company reports net profits/net income/net earnings they will write $0 if they are not in the black? Of course not, they would use a negative sign or parentheses instead of simply writing a zero, just we're seeing today with Nokia.

So does this article ( http://arstechnica.com/business/2012/10/amazon-earnings-slip-slightly-in-the-third-quarter/ )  state:

As I think it should:

"Amazon posts first loss in four years, LivingSocial investment did poorly"

Or, as you suggest it should:

"Amazon posts first negative profit in four years, LivingSocial investment did poorly"

or even one of the two following:

"Amazon posts first (profit) in four years, LivingSocial investment did poorly"

"Amazon posts first -profit in four years, LivingSocial investment did poorly"

Just asking 

Originally Posted by Tallest Skil 

I just don't get that. They don't magically have more money than they do have, so whatever actual profits (positive money going into the hands of the companies) exist, THAT is the 100%.

Agree.  But wouldn't it be great if we could eat negative-sized slices of key lime pie?

Wouldn't we lose weight from the negative calories?

Quote:

Originally Posted by SolipsismX 


1) You're not using the word in the intended form.

2) Showing that the word loss specifically means loss does not prove that another word can't also refer to a loss with the proper qualifier is added.

3) Do a search for negative profit and you'll get an excessive number of comments but I choose one on negative profit margins because it had a video. I though where test failed perhaps a voice might help: ]http://www.ehow.com/video_12221637_profit-margin-negative.html

4) If you and others want to change the meaning of words, the entire structure of the English language and accounting practices that predate every living person on Earth be my guest but it'll be a hard battle.

1. Yes I am

2. Ok, what "qualifier" am I not reading in this article?

3. Your link is talking about profit margins, which is not the same as profit. Profit *margin* is the change in profit (change can be positive or negative even though it has the word "profit" before it) given a change in production or some sort of other input.

4. We do not want to change the meaning of words. In fact, I'm promoting proper English and the proper use of lingo, especially in the sense of accounting. I don't know alot about anothing except for the field that I have studied and worked in extensively. No where in our arguments are we trying to restructure a language.

Quote:

Originally Posted by Steven N. 

Actually nope.  I have friends that do this type of thing in their day job in Chicago (you know.  The Ph.D. in math types hired by trading firms) and they specifically look at the profits within an industry separately from the losses within the industry. They are modeled uniquely across calculations.

It depends on what the purpose of analysis is. If your interest is only in looking at the firms with positive net income in an industry, that's exactly what your PhD friends (gee, I am impressed; NOT) should/would do.

But if your unit of analysis is the industry, you would sum up the net incomes across all firms. Go to the industry section of Yahoo Finance and take a look. For example, go to Airlines: http://biz.yahoo.com/ic/770.html, where you'll notice that they report industry profit margin of 2.8%. Next, go to the list of firms in the industry: http://biz.yahoo.com/p/770conameu.html and see if you can figure out where they get the 2.8%.

Here's a better example: How do you think the P/E ratio for, say, the S&P500, or say, that for the Banking or Energy or Telecom sector is calculated? Specifically, how is the denominator calculated?

Quote:

Originally Posted by BrianCPA 

Accountant's used P&L statements everyday, which are different from Income Statements. But, only accountants would know that.

Weird. I am looking at Apple's latest 10Q, and p. 2, which reports "Net income" is titled "Statement of Operations."

Someone had better tell the accountants......

Quote:

Originally Posted by SolipsismX 


1) You're not using the word in the intended form.

2) Showing that the word loss specifically means loss does not prove that another word can't also refer to a loss with the proper qualifier is added.

3) Do a search for negative profit and you'll get an excessive number of comments but I choose one on negative profit margins because it had a video. I though where test failed perhaps a voice might help: ]http://www.ehow.com/video_12221637_profit-margin-negative.html

4) If you and others want to change the meaning of words, the entire structure of the English language and accounting practices that predate every living person on Earth be my guest but it'll be a hard battle.

Opps.  Profit Margin is a uniquely different thing than profit. Profit margin is base on Net Income and that can, in fact, be negative.  But that is neither here not there.  This is about calculating % profit share and this MUST BE DONE BY ONLY USING THE PROFITS within the sector and companies posting losses MUST BE DISREGARDED.

This is because the base calculation is:

                          Profit Of Company A

%Profit share = -----------------------------------  * 100%

                                  Total Profit

If you allow the total profit to go to 0 (or even worse, negative) the entire thing simply falls apart.  If the total industry profits within a sector swing to a loss, than companies actually posting a profit could show a %profit share of -50% while companies posting a loss would indicate a 200%.  Likewise, if the actual industry profits get simply small, you could end up with nonsensical numbers like:

Company A: 123,098.01% of the profit

Company B: 3,323,54.1% of the profit

Company C: -34,003,234% of the profit

What does that mean and what information does it convey?

Quote:

Originally Posted by anantksundaram 

It depends on what the purpose of analysis is. If your interest is only in looking at the firms with positive net income in an industry, that's exactly what your PhD friends (gee, I am impressed; NOT) should/would do.

 

But if your unit of analysis is the industry, you would sum up the net incomes across all firms. Go to the industry section of Yahoo Finance and take a look. For example, go to Airlines: http://biz.yahoo.com/ic/770.html, where you' notice that they report industry profit margin of 2.8%. Next, go to the list of firms in the industry: http://biz.yahoo.com/p/770conameu.html and see if you can figure out where they get the 2.8%.

 

Here's a better example: How do you think the P/E ratio for, say, the S&P500, or say, that for the Banking or Energy or Telecom sector is calculated? Specifically, how is the denominator calculated?

Again, profit margin is a uniquely different thing than profit.  Sighh.. You can lead a person to enlightenment but you cannot make them learn.  They have to do that on their own.

Quote:

Originally Posted by wakefinance 

It's neither moot nor clever. It's math and your either with it or against it. If I were you I'd stay on math's side in this.

If you say it's "neither moot nor clever", I guess it must be so.

Sigh. Just ignore the point about the real world... (if you can find me an industry with exactly zero profits, I'll eat crow; otherwise, you call it quits on this one -- fair?)

Quote:

Originally Posted by BrianCPA 
Profit *margin* is the change in profit (change can be positive or negative even though it has the word "profit" before it) given a change in production or some sort of other input.

Yikes, Mr. Accountant, I've got news for you. "Profit margin" means Net Income (= Profit) ÷ Revenue. (Sometimes people use the $ number instead of the percentage, but the most common usage is in %).

You can look that up in 29.9 million sites in 0.15 seconds.

Quote:

Originally Posted by anantksundaram 

Weird. I am looking at Apple's latest 10Q, and p. 2, which reports "Net income" is titled "Statement of Operations."

 

Someone had better tell the accountants......

I said that P&Ls were different from Income Statements and you took that to mean that "Net Income" and "Statement of Operations" don't exist in the world? You are digging at everything possible for your argument to stay afloat.

I seriously don't get your point here. Because accountants use P&Ls, Apple can't use a "Statement of Operations" or the other way around?

Quote:

Originally Posted by anantksundaram 

First, the probability that, in the real world, industry profits would total exactly zero is perhaps zero (or close to that). So, it's kind of moot other than in its attempt to be clever.

 

Second, I can't speak for jragosta (although I suspect he might agree), but I would VERY comfortably say that the company had more than 100% of the industry profit (= Net Income).

The film industry (as in Fuji-Film, Kodak, Agfa) might disagree with you on that.  Industries come and go all of the time and the math has been very well established to deal with the conditions when industry profits go to zero and show entire losses.

The very fact you would be willing to indicate a % profit share > 100% means I hope never ever ever to work for you or with you on a project.

Quote:

Originally Posted by wakefinance 

In physics when an equation results in an undefined answer the physicist realizes that the equation is inadequate ..... etc etc

Finance is not Physics.

I thought we were discussing the former.

Quote:

Originally Posted by anantksundaram 

Yikes, Mr. Accountant, I've got news for you. "Profit margin" means Net Income (= Profit) ÷ Revenue. (Sometimes people use the $ number instead of the percentage, but the most common usage is in %).

 

You can look that up in 29.9 million sites in 0.15 seconds.

My mistake. Ooops.

I was thinking of "marginal profit", which is the change in profit from producing more units, etc.. I am happy to acknowledge that you are correct and I mispoke.

Regardless though, this article is referencing "Profit", not "Profit Margin", which are two different things, which was my point to begin with: Profit cannot be negative but Profit Margin can.

Thanks

Quote:

Originally Posted by Steven N. 

Again, profit margin is a uniquely different thing than profit.  Sighh.. You can lead a person to enlightenment but you cannot make them learn.  They have to do that on their own.

That's why I gave you a second, as I said, "better" example, where I asked your about a denominator in an industry P/E ratio. Remember that? Sigh.... the question you chose to ignore?

Quote:

Originally Posted by Steven N. 

The very fact you would be willing to indicate a % profit share > 100% means I hope never ever ever to work for you or with you on a project.

Oh, the probability of that is zero. Don't worry.

Quote:

Originally Posted by wakefinance 


The point is that equations cannot apply to the real world, physics or accounting, when they give undefined answers.

Ah, tell me then, (after all, your name includes the word 'finance' in it, so I am guessing your interests are somehow related to the field), do P/E ratios apply to the real world? Especially since you argue that E can be zero?

Quote:

Originally Posted by SolipsismX 


Shameful! You've completely removed the possibility that there can be more than one correct statement or that words can have synonyms and related concepts by saying that I would choose the latter. Both are correct but one is more clear in the context of a headline? See, the problem (as revealed by the 2nd part of your post) is that you aren't comprehending basic terminology so you think it makes no sense.

Based on the tone of your reply the title was:

"Amazon posts first loss in four years, LivingSocial investment did poorly"  :-)

You say there is more than one way to state it.  Find the article that states it as:

"Amazon posts first negative profit in four years, LivingSocial investment did poorly"

or some similar method.

But at the end of the day, it is flawed beyond belief to calculate % profit share of various companies and include companies posting a loss.  There are too many cases where the math simply falls apart and you end up with numbers that mean nothing.  Long ago, people figured out you avoid that by tracking losses and profits uniquely.  It is a simple concept.  Really, it is.

Quote:

Originally Posted by BrianCPA 

 

My mistake. Ooops.

 

That wasn't your first mistake.