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20-08-2014, 01:07 PM
(This post was last modified: 20-08-2014, 01:14 PM by Curiousparty.)
Gross profit = Revenue - Cost
Revenue = ASP x Volume of product
Gross profit margin (GPM) = Gross profit/revenue = 1 - Cost/revenue
Rate of change (ROC) of GPM = ROC of Revenue - ROC of Cost (linear approximation)
[ Basis: ROC of a constant = zero; ROC of X/Y = ROC X - ROC Y; ROC of XY = ROC of X - ROC Y]
ROC of revenue = ROC of ASP + ROC of Volume (linear approximation).
Hence, in summary
ROC of GPM = ROC of ASP + ROC of Volume - ROC of Cost (linear approximation)
The assertion that GPM depends ONLY on ASP and Volume is correct if and only if ROC of Cost is assumed to be ZERO.
i.e. ROC of GPM = ROC of ASP + ROC of Volume (when ROC of Cost = zero)
But, I did not assume ROC of cost to be zero.
[Basis - The inflation rate in China was recorded at 2.30 percent in July of 2014. Inflation Rate in China averaged 5.71 Percent from 1986 until 2014, reaching an all time high of 28.40 Percent in February of 1989 and a record low of -2.20 Percent in April of 1999. Inflation Rate in China is reported by the National Bureau of Statistics of China]
Hope this will clarify all the doubts once and for all on my assumptions of the financial models for sunsine. I think I have been very kind to show almost every single assumption. Hope we can "move on" on this issue.
Revenue = ASP x Volume of product
Gross profit margin (GPM) = Gross profit/revenue = 1 - Cost/revenue
Rate of change (ROC) of GPM = ROC of Revenue - ROC of Cost (linear approximation)
[ Basis: ROC of a constant = zero; ROC of X/Y = ROC X - ROC Y; ROC of XY = ROC of X - ROC Y]
ROC of revenue = ROC of ASP + ROC of Volume (linear approximation).
Hence, in summary
ROC of GPM = ROC of ASP + ROC of Volume - ROC of Cost (linear approximation)
The assertion that GPM depends ONLY on ASP and Volume is correct if and only if ROC of Cost is assumed to be ZERO.
i.e. ROC of GPM = ROC of ASP + ROC of Volume (when ROC of Cost = zero)
But, I did not assume ROC of cost to be zero.
[Basis - The inflation rate in China was recorded at 2.30 percent in July of 2014. Inflation Rate in China averaged 5.71 Percent from 1986 until 2014, reaching an all time high of 28.40 Percent in February of 1989 and a record low of -2.20 Percent in April of 1999. Inflation Rate in China is reported by the National Bureau of Statistics of China]
Hope this will clarify all the doubts once and for all on my assumptions of the financial models for sunsine. I think I have been very kind to show almost every single assumption. Hope we can "move on" on this issue.
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