Gross profit question

[viciam]

Hi there,

I'm trying to work out the gross profit for a shipping company Navios maritime partners.

I'd like to know what to include in the equation.

Revenue for 2012 Q3 was $49,122,000. In the shipping industry this is known as Time Charter Revenue

Time Charter expense was $3,923,000
Direct vessel expense was $13,000
Management fee was $7,323,000

So Gross profit is (revenue - cost of goods sold)

Which items should I include in the cogs? I think many analysis websites are only using Time Charter Expense + Direct vessel expense OR Time charter expense only.

But I had a read through the annual report and it says the following about management fee:

"The fixed management fee covers vessel operating expenses, which include crewing, repairs and maintenance, insurance and dry docking. The manager is directly responsible for providing all these items and services."

Now these expenses are important right? I mean without a crew the ship can't sail, if there's no insurance than the chartering company won't use that ship to move its cargo etc...?

So I should include them in my analysis? I'm tracking the gross profit margin over the last 6 years to see how its grown so I need to be as accurate as possible.

I tried going into the annual report and see if the management actually mentioned gross profit so I could see which items they included but there is no mention of it, and I don't want to take the word of websites like seeking alpha and yahoo finance statistics ( these seem to be too generic )

Thanks in advance guys

 

[McLovin]

Look at the magnitude of the numbers. You're discussing a company with $49m in revenue and quibbling over whether or not include $13,000. It may as well be a rounding error.

The idea of ratio analysis is to look for change over time, so it's more important to be consistent in what you include in the ratio, the actual numbers themselves aren't as important.

From a quick look at their accounts, I think gross profit is going to be a very meaningless number to calculate. These guys operate ships, I'd be paying a lot more attention to their depreciation charge (~33% of revenue) and capex.

 

[viciam]

Hi,

The management fee is $7.3million

I understand what you're saying about gross profit maybe being meaningless but I just want to know how efficiently this company is utilizing its ships compared to others

 

[McLovin]

Hi,

The management fee is $7.3million

I understand what you're saying about gross profit maybe being meaningless but I just want to know how efficiently this company is utilizing its ships compared to others

Gross profit won't tell you how efficient they are at utilising their fleet. You need to find their utilisation rate.

Example: I have three boats...each boat costs $3k/year to maintain and each journey the boat takes costs $5k in fuel and staff (COGS). I charge $10k/journey. Assume a journey takes 12 months, conveniently.

During the year, one boat is hired out and completes 1 journey. So my accounts will look like...

Revenue $10k
COGS $ 5k
G Profit $ 5k
Maint Exp $9k
Net Loss $4k

Gross profit margin 50%.

My fleet utilisation is 33%, not very good but completely hidden if you're calculating based on gross profit margin. Having all those boats sitting around doing nothing cost me plenty and meant I made a loss.