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To: jim kelley who wrote (23811)	12/1/1997 11:08:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Jim, you hit the nail on the head when you said "I believe this is their best strategy, i.e., maximize sales and inventory turns instead of optimizing on profit margins." There are amazing numbers of people who don't understand this simple point! If they would think about it they would understand that the goal of any business is to maximize the present value of future cash flows per share, or in this kind of business we could use eps as a surrogate. The important issue here is that the numerator is earnings, and earnings equals gross profit less expenses. Gross profit, in turn, is a function of sales times gross margin. But, because of the price elasticity of demand, lowering the selling price can sometimes result in a disproportionate increase in revenues which may result in greater gross profits. The optimal gross margin is the one that produces the greatest gross profit! All too often we see some foolish post on the thread arguing that decreasing component prices is bad because it will lead to decreased profit! These people really ought to consider enrolling in an economics course. Regards, Paul