While gross margins can be useful for detecting deterioration in a company’s competitive position, and profit margins are a key ingredient in the target price calculation, I’ve found operating margins the most useful of the three measures for evaluating a company’s profitability trends.
For instance, Table 11-11 shows communications equipment provider Black Box Corporation’s operating margin history, as it appeared in May 2000.
|Period||Q 3/00||Q 3/99||FY 3/00||FY 3/99||FY 3/98||FY 3/97|
Black Box’s operating margin held at a steady 19 percent through fiscal 1999. However, it dropped to 16 percent in its fiscal year ending March 1999. That amounts ...