No. of Recommendations: 0
The company has no debt, nice margins (100%
gross, 35% net)

Jonathan B wrote:
OK, maybe I'm a little dense, but how can a company have 100% gross margins? It doesn't cost them anything to make what they sell? I understand that royalties are high margin, but are these people really just sitting there and cashing checks? What am I missing here?

Jonathan---
It's not you that's missing something here....such is the results of a cursory glance at the financials. Thanks for pointing this out.

It's a bit hard for me to sort out from the current balance sheet, because they don't break out the cost of goods, making it difficult to calculate gross margins. Total revenues for FY 1999 were $71,710,000; cost of contract revenue---admittedly, not the same as cost of goods---was $125,000. Using these figures yields a gross margin of 99.8%, which is where I got my "100%" figure. As you point out, however, this is not meaningful.

Instead, if you use total costs and expenses ($35,555,000), then this works out to gross margins of 50.4%. Net margin this FY is 31.6% (net income of $22,661,000). Compared to last FY, quite an improvement; gross margins last FY work out to 0.6%, with net margin at 0.002%, or roughly break even.

So, MIPS is now producing considerable profit. There is one disconcerting piece of information that I gleaned from the balance sheet: a decrease in research expenditures, from $43,446,000 (76.5% of total revenue) in FY 1998 to $21,069,000 (29.4% of total revenue). Now, it might be argued that the first figure was too high, that you would like to see research expenditures somewhat lower as a percentage of gross revenues as a company grows and develops. But, for a company which is largely engaged in marketing intellectual property, I'm not sure that that magnitude of decrease is a good sign. It suggests to me that in the future they may not be quite as cutting edge as they are now, and is concerning. This may not be crucial, considering that a greater proportion of revenues is likely to arise from royalties, rather than licensing, in the future, as devices containing their technology proliferate in the near term. But, it suggests less than a solid commitment to long term strength.

As always, JMVHO. Thanks for pointing out the error.

Walkingshadow
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.