Buyer's Market

When the buyers have more power than the sellers.

Think about New York City real estate in October of 2001. Lots of nervous nellies wanting to leave the city, scared by the lunatics who bombed it. Tons of property for sale...so it was a buyer's market at that time.

Smart, faithful investors bought...and as real estate prices skyrocketed over the next two decades, they made a killing. The good kind.

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Finance: What is operating leverage?729 Views

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Finance a la shmoop. What is operating leverage? It's good leverage not like

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debt which is a liability and quote bad leverage unquote. Good leverage means a [Operating leverage vs debt diagram]

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few things like when you scale in operations and grow very very large then

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you have leverage over your suppliers. It's a very different discussion when [Tomatoes in water]

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you're buying Tomatoes for your spaghetti sauce like when you're buying

00:30

ten thousand tomatoes a month versus when you get very very big like Egyptian [Pyramid of tomato baskets]

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pyramid big and are buying 10 million Tomatoes a month like that scale, you get

00:40

way more attention at that point from the non-union labor picking them in [Two guys pop out a bush]

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Mexico and can command a whole lot more in discounting as far as deal terms go

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and you know other favors when you negotiate well operating leverage works [A trolley being pushed around a supermarket]

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with stocking grocery shelves as well, meaning that if you are coca-cola you

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have a whole lot more operating leverage with Safeway than does Salmonelli's [Scales of the businesses and Safeway showing Coca-Cola with more leverage]

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pesto in a can like nobody goes into a Safeway or Kroger's hunting for a brand

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of pesto sauce but pretty much every soda drinker on earth which is pretty [Lots of people on a map of the world]

01:15

much every human on earth buys Coke or Pepsi and both have extreme operating

01:20

leverage. While operating leverage comes in a range of forms like for example

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let's consider a semiconductor maker this isn't fizzy water and sugar and [Someone opens a soda can and it explodes everywhere]

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union Teamster co-opting this is actually really hard Tech where it took

01:34

decades to be able to produce gigaflops of information put through a tiny piece [Binary code going by]

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of fiber for a dollar, really hard to make highly unlikely that Somalia is

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gonna one day be a big competitor in the semiconductor architecture business so [Guy plugs something in and it explodes]

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the winner in that space a little company called

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Intel. Yeah it had for a long time a virtual monopoly in being able to [Monopoly logo appears]

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produce massive computing power for an incredibly cheap or high value price. [High value price tag appears]

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Well Intel had massive operating leverage in its heyday until Apple and a

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few Chinese companies spent a hundred billion dollars or so making themselves [Apple and Intel in a boxing ring]

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into viable competitors and yeah and that's [Apple chucks a fire ring at Intel and knocks it out the ring]

02:15

what happens when you try to be a monopoly in a competitive world.

02:18

Well the key idea here is that operating leverage or power that a business has in [Definition of operating leverage]

02:23

running itself usually translates directly in the form of profit margins

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like the more operating leverage accorded a company the higher its profit [Operational leverage is piled onto the scale and profit margins take off]

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margins will usually run which is very different from this kind of operating [A surgeon wiggling a tool round in an operation]

02:38

leverage...

Find other enlightening terms in Shmoop Finance Genius Bar(f)