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Technology Stocks : Trimble Navigation
TRMB 82.300.0%Dec 4 3:59 PM EST
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To: Yin Shih who wrote (2584)7/13/1998 9:59:00 AM
From: Hockeyfan  Read Replies (2) of 3506
 
Leverage Scenario

Unfortunately GAAP accounting requires that revenues and expenses be matched in the proper period. Inventory costs, including WIP, are not expensed through Cost of Goods Sold until the period that the finished products are actually sold, therefore you can not prepay inventory expenses.

However, there is a phenomena called operating leverage where more of revenues carry to the bottom line after fixed costs are covered. Break even indicates that all fixed and variable costs were just covered and additional revenues should hit the bottom line at a rate HIGHER than the gross margin, adjusted for tax.

Net, net, at 50% gross margin and 35% tax rate: $5 million X 50% X (1-35%)/23 million shares = 7 cents per share. As David pointed out, it would take 100% gross margin to reach 14 cents per share, which isn't likely.

Could the VP who resigned be falling on his sword?
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