Great Performance !

The two other profitability measures are ones already identified as cash drivers: gross margin as a percentage of sales, and operating expense (SG&A) as a percentage of sales. Whatever money remains from each sales dollar after paying cost of goods sold and SG&A is called cushion. Cushion is what’s left from the business to pay your three most important constituencies: your banker, your government and your stockholders. If margins should erode for reasons beyond your control, cushion can perhaps be shored up by better control of SG&A. Conversely, if SG&A is unavoidably increasing, you can look to gross margin to make up the difference either via pricing or via production and purchasing efficiencies. Maintaining cushion is critical or you’ll risk your ability to meet the needs of those three constituencies. Let’s look at the long term for Woody’s Lumber on a common-sized basis going back to 1989 and tracking though to 2000.