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View Full Version : Philip Fisher's view on investing


Steve
03-04-2011, 11:51 PM
Investor Philip Fisher believed that one should not invest in a business simply because it produced above average sales growth. Sales growth was not the important figure to focus on. He felt the important figure to focus on was the company's ability to generate profits for the share holder.

You can have all the sales growth you want, but at the end of the day, if there isn't a corresponding growth in profits, the sales growth is for naught. It is far more important for a company to focus on maintaining and improving company profits.

Philip found that superior returns would not be produced from marginal companies. Such companies may produce profits during good economic times, but will see a rapid decline in their profits during an economic down turn.

Because of this, Philip sought out companies that had the lowest production costs of their industry. They also, not only needed to have the lowest production costs, but needed to have a focus on keeping such production costs low at all times. Such companies would produce high profit margins.

When a company has a low cost of production, it is better equipped to handle a down turn in the economy. As an economic down turn will put higher production cost companies out of business. As these competitors are knocked out of business, the company with the low cost of production will then be in a position to expand and grow as the economy picks up in its next cycle.

In order to be able to have a low cost of production, Philip felt a company would need to have a strong understanding of it's costs. It would need to have a break down of what each step of production cost the company. Then a company could apply it's resources to the products or services that provided it with the best return on it's investment.

Think about how these important points apply to your lawn care business. Are you keeping your operation costs low? Are you keeping an eye on where you are spending your money to know which services are the most profitable? Are you focusing on scaling up those services that bring you the best return for the dollars you invest?

Are you able to withstand an economic downturn because of your low overhead costs and are you then able to better position yourself for future growth, all while keeping your eye on your production costs to make sure they are in line and don't spiral out of control?