Post #7597 by mungofitch on the Berkshire Hathaway board

Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)

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For example: to make money, you have to sell stuff. It's an imperfect metric, but not useless--in the long run profits, therefore value, can't rise faster than sales do.
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Of course they can. Bring down the costs. COGS for a heavy non-recurring cost company like Meta and maybe even NVidia and in general all tech companies don't follow this logic at all.

No, it's a mathematical impossibility.
If profits rose faster than sales over the long run, then soon enough profits would exceed revenues, which obviously can never happen.
Net margins can change for sure, with good and bad years and good and bad decades. Taxes go up and down, and interest costs go up and down. And some companies will have much higher ranges than others.

But over time net margins are DEFINITELY limited to a range, forever. This is true both of the market as a whole, and for every individual company within it.

Jim

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