The Motley Fool Discussion Boards

Previous Page

Investment Analysis Clubs / Liquid Lounge


Subject:  Re: Software margins Date:  12/30/2019  3:57 PM
Author:  pauleckler Number:  41646 of 41659

Software companies are likely to be high margin because the investment they have in production is tiny compared to a manufacturing company.

The cost of producing software code can be significant investment and their major asset. Otherwise, they may or may not own computers and office equipment.

Their income is mostly from sale of services or software. Cost of goods sold is usually tiny.

Compare that with the cost of building an auto plant.

I recall looking over the 10k of H&R Block some years ago. To meet the financial ratio tests often used for manufacturing companies they owned a huge portfolio of bonds. Mostly their offices were leased. All they owned was software and office supplies.

People talk about the huge cash accumulation at companies like Apple and Microsoft. You may imagine they too own large bond portfolios.
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us