Secret Life of Money - Everyday Economics Explained
Metadata
- Author: Daniel Davies
- ASIN: B00R0IZFL4
- Reference: https://amazon.co.uk/dp/B00R0IZFL4
- Kindle link
Highlights
RUNNING ON EMPTY Any machine will be rated for its capacity; the amount of output that it should produce. A lot of the skill of managing a manufacturing production line is to keep the machines working as close to 100 per cent of their rated capacity for as much of the time as possible. But if there’s a rush order, you can usually run a machine at more than 100 per cent of its rated capacity – the simplest way to do this is to delay scheduled maintenance. You can also turn up the speed of motors, run furnaces hotter, tolerate a higher defect rate and so on. For most of the Second World War, pretty much the entire manufacturing capacity of the UK was running at 110 per cent of maximum output and more. — location: 515
This, by the way, is a good enough summary of why you should always be a bit sniffy about companies that talk a blue streak about ‘EBITDA’ (earnings before interest, tax, depreciation and amortisation). EBITDA is a decent measure of the cash being thrown off by the business, which is a useful thing to know in a lot of contexts. But, quite apart from the fact that the taxman and the interest bill are not exactly optional extras, any company that is trying to get you to focus on the cash, ignoring depreciation, needs to have a convincing story about why it doesn’t need to be building up a piggy bank to replace worn-out assets. Such stories exist (mainly in people-intensive businesses, where the main depreciating assets are things like software licences), but it’s worth asking the question. — location: 568