How much does revenue matter?

This finance link post from the team at 37Signals briefly compares Apple’s share of the mobile phone market (apparently by volume) with its share of the profits in that market:

Market share is irrelevant if you can’t turn it into a dominant profit share.

That’s their quote. Here’s ours:

“it’s all about revenue” #famouslastwords

There is only one number on your financial statements that matters: Free Cash Flow.

Yes, revenue matters, in the technical sense. But unless it ultimately translates into FCF, it doesn’t.  If you have a problem with rising costs over volume (rather than economies of scale), more revenue will kill your business faster. If your business fails at shipping products to clients, more orders will merely give you more chances to fail and disappoint the customers you have. (We’ve seen this specific problem firsthand.)

As an aside, the underlying article describing initiation of coverage of Apple describes current margins but the quotes do not tie the present to the future, which is sort of critical for an equity analysis. But we’re used to that sort of viewpoint, which is why our bleeding-edge financial analysis process, along with proprietary tools, is still turning on light bulbs in the heads of CEOs and CFOs.

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