Sunday, August 12, 2007

Does a business have to be high margin to be attractive?

Had a very interesting discussion today over lunch with a friend about
what should the attractiveness of a business be based on. While low
margin businesses worry me, i think i am getting over that fear to
appreciate the importance of return on equity. Margin is an abstract
thought in my opinion, a quantity that is calculated post, as an
entrepreneur i feel whats more natural is to look at whats the best
business to enter given a certain finite amount of resources. I guess
thats why funds are measured on IRR and not on the average margin of
the companies they are invested into.

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