Why UNIT Economics is important to understand.

Why UNIT Economics is important to understand.

UNIT Economics is basically converting the whole Profit & Loss into per unit basis. It helps us to easily gauge the profitability of company on per unit basis. So, whenever in future there is higher sales volume, higher utilization or expansion plan; we can easily calculate through UNIT Economics. As we know, Tonnage is the main Unit universally used in Steel Pipes & Tubes industry, so I have found UNIT economies on per ton basis. Also, one thing I would like to mention is that margins, sales, cost, etc. varies depending on product category i.e. SAW, ERW and Seamless Pipes as well as location of their sales. For this reason, finding out UNIT Economics for each company seems logical.

The result of per unit profit & loss for each companies (average of 2011 to 2020) are:

Per ton figures are taken on average. Averages are long term from 2011 to 2020 basis and are found on basis of sales volume. Other details are available in the sheet attached.

If you have gone through cost driver and its analysis on my earlier blog, you will realize that it closely matches with Unit Economics. The major costs goes into Material, Manufacturing, Employees and Selling Expenses i.e. Freight. I have only converted into per ton basis. The main reason I did is to help us in understanding revenue in case of future expansions in capacity & its utilization levels. With only data of volume production, sales, capacity, etc. of future periods, all of our profit & loss will be estimated (with help of Unit economics sheet) and they will be near representation of actual figures (mostly).

Therefore, from the above it is clear that Unit Economics was another very useful part in understanding the revenues for future periods and will help us a lot in any kind of future calculation we do.

Thank You!

 

Disclaimer: Views are personal and presented through independent research. By no means there is any stock advice. Also, presented content is for learning purpose only. I might be wrong in presenting data and inaccurate data, let me know if you find any discrepancies.