Value Investing – Absolute Dollars

In the hospitality industry, there is one financial tenet that takes precedence over any other business perspective. With this industry, it is about putting the maximum number of dollars (ABSOLUTE DOLLARS) in the register after each day. One of the most misunderstood business dynamics of this industry is the higher than average fixed cost to run the company. Golf courses are a perfect example. Golf courses qualify as one of several different types of hospitality based businesses and they have an extremely high fixed cost for operations.

During a typical day, the grass has to be cut on every green, about 6 holes require mowing and maintenance, all tee boxes and greens need to be watered. And in addition, the pin placements must be changed on all 18 greens every morning. Think about the high labor costs to maintain an entire recreational facility like a golf course. This doesn’t count the cost of labor for the Pro Shop or the concession area. Whether two golfers play or 200 play on any given day, the cost to operate and maintain that golf course is not going to change. This is what is referred to as a high fixed cost based operation (business). 

Now there are some marginal costs to operate a golf course. It costs about 40 cents to recharge the batteries in the golf cart each night that is rented by the golfers. Other marginal costs might be the cost of the water used when flushing the toilet or maybe about 50 cents worth of grass seed to repair the divots from the duffers in golf. The point is: there really are no marginal costs in the overall scheme of things for a golfer to play this game. If the course can

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