All of that, plus a great brand, strong management, and a future direction that exceeds the current location. Yes, we're pickier than a spoiled child at the dinner table. But we're not interested in diversifying for the sake of minimizing volatility. We're looking for the world's best companies, period. In thinking about the type of financial model that we're looking for in our companies, one of the most distinguishing factors is a high gross profit margin, which signifies a business that's light in material costs.
Gross margin is an easy metric to calculate.
If not, get a more in-depth explanation here . In addition, one of the greatest consequential benefits to high gross margins is the potential for rising net margins. Whereas COGS tends to be a variable cost that increases proportionally with sales, other expenses tend to be of a more fixed cost nature, which means they grow more slowly than sales. Take a look at that table. When gross margins are high and other costs are relatively fixed, the bottom-line impact can be tremendous.