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Technology Stocks : INTC
INTC 40.03-1.3%Dec 1 3:59 PM EST
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To: xstuckey who wrote (159)4/10/1997 7:13:00 AM
From: Reginald Middleton   of 990
 
<I think P/E is also awarded on the basis of gross profit. If it isn't, it probably should be, because this is a measure of the "margin of error" a company has. (I own one, so I know this.)>

This can lead to erroneuos conclusions, for some industries actually require significant investment on line items that do not show up in the gross profit calculation. Marketing and R&D are the obvious. A company can have a gross profit of 50% but its industry and enviornment demand a steady investment of no less than 35% in R&D and markteing to stay on par. A company in a disparate industry may have heavier requirements in the cost of goods/services sold category (thereby reducing gross profits) but much less of a requirement in the R&D and marketing investments.

By comparing these two companies onthe basis of gross profit, you are being misled as to the efficiency and profitabiltiy of the operations.

RCM
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