Marginal Revenue

Marginal revenue is generated from the sale of one more additional item. It also refers to the value of the higher sales price related to beneficial business attributes that justify the additional charges.

Railroad Companies – A Solid and Steady Investment

These six are behemoths when it comes to transportation. All have revenues greater than $2.5 Billion per year and hold at least $4 Billion in fixed assets. The key to this investment is the asset allocation model.  A common thread that binds all of them is that the asset side of the balance sheet is fixed assets intensive. Basically, more than 85% of the assets are fixed in nature. 

Due to this asset structure, there are some business principles every investor should understand because they are applicable to railroad investments. First and foremost is the fixed asset maintenance/upgrade relationship with depreciation expense (allocation of utility value). The next principle is referred to as the break-even point. In general, long life fixed asset driven entities have lower financial break-even points than a traditional company. A third and probably the most influential element of profit for a railroad company is the concept of marginal dollars adding a very high percentage of each marginal dollar of revenue to the profit. The following three sections explain these three principles in more detail related to how they are applied to railroad financials. The final section ties it altogether for the investor as to why railroad investments are a solid and steady investment. Future articles related to this series utilize these three principles when discussing/explaining the respective investment.

Marginal Revenue in Business

Marginal Revenue

The scholarly definition and reality are two different perspectives. The student is taught that marginal revenue equals the additional dollars generated for an additional single unit of sales. It is literally taken right down to the micro measurement. This is simple to understand but in small business, the scope of its meaning and impact are substantial to the bottom line.