Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Chris Hohn, founder of TCI, views high incremental margins as one of the strongest signals of a company’s moat & pricing power💸

Incremental operating margin tells you how much additional operating income a business generates for every additional $1 of revenue.

Here’s how to calculate it:

Pick two periods (Year 1 → Year 2)

Year 1 Revenue: $10B
Year 2 Revenue: $12B
Δ 𝐂𝐡𝐚𝐧𝐠𝐞: $𝟐𝐁

Year 1 Operating Income: $2B
Year 2 Operating Income: $3B
Δ 𝐂𝐡𝐚𝐧𝐠𝐞: $𝟏𝐁

𝐈𝐧𝐜𝐫𝐞𝐦𝐞𝐧𝐭𝐚𝐥 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐌𝐚𝐫𝐠𝐢𝐧 = Δ 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐈𝐧𝐜𝐨𝐦𝐞 / Δ 𝐑𝐞𝐯𝐞𝐧𝐮𝐞

So: $1B / $2B = 50%

𝘔𝘦𝘢𝘯𝘪𝘯𝘨: 50 cents of every new $1 of revenue fell to operating profit.
___

Why this matters: High incremental margins usually signal low incremental costs, pricing power, & structural operating leverage — the traits that allow a great business to compound faster as it scales. It’s one of the cleanest ways to see whether a company’s moat is strengthening & efficiently scaling.

I’ve included 4 high-quality stocks with their incremental operating margins since 2021 for further example 👇🏽

$FICO $MSFT $MA $NFLX
tweet

Fiscal.ai
TSMC management expects to grow revenue at a 25% CAGR from 2024 to 2029.

Why wouldn't this work from here?

$TSMC https://t.co/vcgwlDoFIA
tweet

Startup Archive
RT @foundertribune: "Good Products Are Hard to Vary" by Naval Ravikant https://t.co/K32IpwivHH
tweet

Startup Archive
Naval Ravikant on product development:

"Good products are hard to vary. Go look at the iPhone: [...] the Platonic ideal of the truly personal, pocketable computer. [...] They’ve been able to improve the components and improve some of the underlying capabilities; but materially, the form factor is hard to vary. They designed the right thing."

"Good Products Are Hard to Vary" by Naval Ravikant https://t.co/K32IpwivHH - The Founders' Tribune
tweet

Fiscal.ai
Analyst: "Account growth is very strong... how long can you keep this up?"

Thomas Peterffy: "As long as I shall live."

$IBKR https://t.co/F4jnMg8UrT
tweet

God of Prompt
RT @free_ai_guides: My client fired their graphic designer last month.

Not because of budget cuts.

I showed them ChatGPT images with JSON prompts.

50 ad mockups in one afternoon 🤯

I packaged everything into a free guide.

Comment "ChatGPT" and I'll DM it. https://t.co/KJUuQg01mP
tweet

Startup Archive
Peter Thiel on what he would look for if he was joining a startup

Wharton professor Adam Grant asks Peter Thiel what he would look for if he was joining an early-stage startup. Thiel gives a simple response:

“Do you like the people? Do you think you could become good friends with these people? That’s such a critical part for getting these things to work.”

He recalls interviewing with a law firm in New York early in his career and one partner telling him:

“It’s a place where everybody hates everybody else, but we all make lots of money.”

The partner viewed it as an illustration of how incredibly “professional” the firm was. But Thiel argues that we need more than just “professional” at work.

Thiel elaborates more on this idea in his book Zero to One:

“Why work with a group of people who don’t even like each other? Many seem to think it’s a sacrifice necessary for making money. But taking a merely professional view of the workplace, in which free agents check in and out on a transactional basis, is worse than cold: it’s not even rational. Since time is your most valuable asset, it’s odd to spend it working with people who don’t envision any long-term future together. If you can’t count durable relationships among the fruits of your time at work, you haven’t invested your time well—even in purely financial terms.”

Video source: @Wharton (2014)
tweet