Everyone is familiar with the term “profit margin.” It’s one of those things you might hear in a TV show or movie about business people doing business things. You know, a term that’s accessible and that gives off that “Oooooh, businessy” vibe, but mostly doesn’t mean anything to the average person.

Well, we’re going to change that today.

There are three major “margins” that can tell you a great deal about a business. We’re gonna break down each one, learn how to calculate it straight from the income statement (one of the three main financial statements), and talk about what each one means and why it matters.

The Three Margins

Starting at the “top” of the income statement and moving down, the three margins are:

• Gross margin
• Operating margin
• Net margin

It’s easy to describe the simple equations to calculate these things, but it’s a lot more helpful to actually describe what they mean and what they imply about a particular business’s operations. So we’ll do both of those things. For this example, we’ll be using O’Reilly Auto Parts’ 2014 4th quarter income statement. You can find it here. Relevant images will be included.

Gross Margin

Ew, gross. The gross margin is the ideal place to start, as it’s the simplest to understand. Also, the stuff we need for it is conveniently located at the top of the income statement. In fact, as we march through these, we’ll go top to bottom on that statement. It really does make some sense!

Gross profit is no more complicated than revenues (what customers paid us for our stuff) minus cost of revenues, also referred to as cost of goods sold or cost of sales (what we paid to get the stuff that we sold). In Q4 of 2014, O’Reilly sold $1.764B worth of mufflers, oil, windshield wipers, tires, etc. They paid $852M to get that stuff from the muffler, oil, and tire manufacturers.

The difference between these two values gives us gross profit, as shown on the income statement below:

All the margins we have are simply a ratio between profit and revenue. So to get the gross margin, we take gross profit (what’s left over after we bought stuff from manufacturers and resold it to our customers) and divide it by revenue. To get it as a percent, of course, multiply by 100.

As we go through all these margins, keep in mind why we like to analyze based on percents and ratios. If you say “We made a million dollars gross profit last quarter,” it sounds like a lot. But if you had a billion dollars in revenue and only made a million dollars gross profit, a measly 0.1%, then your money would have been better off in a savings account, and you don’t have much of a business. Percentages scale well, which is why we like using margins. So remember that as we develop these concepts.

What Can We Learn from Our Gross Margin?

Alright, now that we know what it is, let’s talk about what we can learn about a company from this number.

As we go through the three margins, we’ll see that each one corresponds with a specific strength or weakness in our company. Within those strengths and weaknesses, we’ll see variables that we can actually play with to improve the respective margins, and therefore, the business’s overall profitability.

Gross margin corresponds with the strength of our business model. If our gross margin is too small, it could indicate one or several things. For one, it could mean we don’t generate enough revenue. That could, in turn, be caused by several sub-factors. Maybe there’s too much competition, creating excess supply and driving down prices. Or maybe the industry we’re in doesn’t have enough demand, again, lowering prices. It could mean that our product pricing is simply too low to be sustainable. All of those triggers will affect revenue.

On the other side (after all, there’s only two things in this equation), our margin could be small because the cost of goods sold is too high. That would point to the same economic factors as in revenue, but in reverse. The stuff from our suppliers might be too darn expensive, which could be because a lack of competition among those manufacturers. Or it could be that our supply chain department isn’t finding or negotiating good deals.

Whatever the case may be, you can start to see how these numbers are useful. You think, “Gross profit margin. Hm. Cool.” But savvy business leaders are looking at that number and thinking of what could be causing problems, and what to do to fix it.

Let’s move on.

 Operating Margin

While gross margin says a lot about the industry environment that we’re in, operating margin can tell us a lot about our company’s internal performance.

To get to our operating margin, we need our operating profit. Also called operating income. Or income from continued operations. Or EBIT (earnings before interest and taxes). Or EBITDA (earnings before interest, taxes, depreciation, and amortization). It has a lot of names that are mostly synonymous, but what it really means is how much “background” stuff we had to do to generate our gross profit.

In O’Reilly’s case, the only line item they had was SGA (selling, general, and administrative). This includes items like rent, utilities, advertising, and employee salaries. In a different business, they may have other line items like research and development (huge for an industry like, say, pharmaceuticals). Anything that is in support of making the business work and achieving sales/revenues goes here. And we subtract that stuff from gross profit to get operating income.

O’Reilly’s operating income is shown below:

And again, to get our operating margin, we take operating income as a percent of revenue:

What Can We Learn from Our Operating Margin?

Here’s where you might not like me. While the company has some control over gross margin, it’s pretty limited by existing supply and demand, as well as competitors and manufacturers/suppliers. We have far more control over operating margin, because operating expenses are things that are totally within our walls.

Problems with operating margin usually result in actions like layoffs, store closures, and cost-cutting. And yeah, sometimes, unfortunately, those are the right things to do. Better to close a few stores or lay off a few employees than to go out of business and put everybody out of a job.

O’Reilly could put a professionally trained Formula One driver on every aisle to help customers, but it would be prohibitively expensive. It might create an awesome atmosphere and superb value for the customer, but it would probably put the company out of business fast. They could spend hundreds of millions of dollars on high-profile advertising featuring celebrities and athletes. They could buy the largest storefronts in all of the cities they’re in and have the most impressive shopping environment. But at some point, they’ve spent a whole lot of money on things that don’t really add anything, and in fact, are making the business impractical. On the flip side, we could be spending too little to get quality customer service, or create a strong product, or advertise sufficiently to generate business. Either way, these are the types of budget items you’ll see leadership fiddling with when operating margins are subpar.

Net Margin

Here we are at the final margin. We started with basic sales minus cost of sales (gross profit), added in cost of running the business and achieving those sales (operating income), and now, we’ll take out financial stuff like interest on our corporate debt and taxes that we have to pay to get net income, which, when divided by revenue like the others, produces the net margin.

Yahoo! Finance that we’ve been referencing is a little unclear on which values are positive and negative when turning operating income into net income, but you can apply a little common sense and very simple math and figure out where it comes from. “Other income” adds to operating income to get EBIT (it’s not by definition the same as operating income, but it’s typically very close, as shown here), then take away any interest we paid to creditors to get income before taxes, take away taxes and boom, net income. Easy peasy.

And for the last time, we’ll take net income divided by revenue to get our net margin.

What Can We Learn from Our Net Margin?

In addition to providing a good overall snapshot of the health of our business, the net margin indicates the strength of the company’s financial positioning. If our operating margin is good but net margin is bad, it likely indicates that we’re carrying too much debt or interest rates that we can’t handle.

Of course, the net margin is probably most often used as a summary figure. Compared to the operating margin in isolation, it gives us a feel for our financial situation, but its greatest use is that it bundles together all the indicators into one. If our net margin is solid, we probably don’t have major problems with our business model, operations, or finances. So it may seem like a simple number, but there’s a lot of information built into it!

Summary: What’s a Good Margin to Shoot For?

Okay, last thing. What makes a good margin? Well, positive is obviously one critical component for everybody, because if any of your margins are negative it means you’re not making money. Might be due to industry troubles, operating issues, or financial woes, but no matter who you are, something is wrong if these numbers are consistently negative. But beyond that, how do we know if we’re doing well?

As with many financial metrics and ratios, we’re going to make some comparisons. There are two things you want to think about when looking at margins: yourself, and your competitors. If your margins are higher than they were in the past, you know that you’re improving internally. If your margins are better than your competitor, you know you’re outperforming them. Both of these are good apples-to-apples comparisons. Some industries naturally have extraordinarily high margins; Microsoft’s net margin for Q4 2014 was 22.1% because software is typically a high margin industry. Others, like commodities (stuff you can get from almost anybody, with little differentiation), are much lower; national grocery chain Kroger’s net margin in Q4 2014 was 2.1%.

So, who would we look at to see if O’Reilly is doing well? AutoZone is a pretty obvious competitor, same space, automotive retail, and very similarly sized companies. You can bet that O’Reilly leadership is looking at AutoZone’s numbers to see how they stack up.

If you feel like it you can play CEO for the next 5 minutes and look at AutoZone’s Income Statement for the same quarter. Which margins are better/worse? What does that mean about the strengths and weaknesses of the two competing stores? If you were the CEO, looking at these numbers, what actions would you take? You now ought to be equipped with the financial tools to start answering some of these questions. Good luck!

Growth. It’s a word that’s on almost every company’s list of goals. There’s even “conventional wisdom” sayings like “If you’re not growing, you’re dying.” Corporate growth is good for investors, employees, and the communities they reside in. So it stands to reason that more growth is always a good thing and makes for a healthier, more successful company.

Except it doesn’t.

Let’s say you’re going to start a bank. After renting a building and getting your affairs in order, you’ve got $1,000,000 in cash available to make investments. As a bank, much of your revenue is going to be interest payments; banks make money by loaning out money at a rate exceeding the interest they pay on savings. So the best way to grow the business’s revenues and income is going to be to issue loans to customers. Seeking growth, you issue ten $100,000 mortgages at a 5% interest rate. Excellent. Your cash is deployed in solid investments that are going to make you a good amount of money. If you issued 30 year mortgages, you’ll make over $90,000 in interest payments over the life of each loan – excellent return on investment. Well hey, we’re boosting revenues and income, let’s see if we can grow some more!

But wait… when we issue a mortgage, we have to shell out cash to buy the property in the first place. We’ve locked up all of our available cash for growth investments already, and it’ll take us 30 years to recover all of the initial investment plus profit. It’ll take 19 months for our 10 mortgages to produce $100,000 in cash to issue another one, and 15.5 years to recover the whole $1,000,000 in cash that we started with, assuming there are no additional investments in that time.

In order to get more cash for growth, there are only a couple of options. One is to take out debt. If you can borrow at a rate less than your net margin, it’s technically a gain financially. It increases your leverage, and therefore risk, but hey, it’s for growth, right? The second way is to gather money from investors. In this case, you get cash in hand, but you give up a little piece of control of the company. This is what happens in a stock issuance – the company is trading control for cash. And again, anything for growth, the holy grail of business sustenance, right?

You can probably see the problem with both approaches. Corporate debt feels really similar to household debt. Leverage can help you do things that you couldn’t otherwise do, like buy a house. But utilized excessively or unwisely, it can cause your finances to be a wobbly stack of dominoes, balanced on a razor’s edge. The same is true in a company. Debt can help us grow our business and make new investments, but too much debt or poorly deployed debt can kill us.

Even “equity financing” – the term for when a company trades control for cash and issues stocks to investors, has its threats. If you give up enough control, you can lose the company or find yourself tugged around by investors who own as much of your company as you do. This is what venture capitalists do. They capitalize on small business owner’s desire for growth and inability to generate the cash to grow sustainably. The business owners, so focused on growth that they’re blinded to the long-term impacts of selling part of their company, accept these deals and eventually get pushed out or bought out when their pursuit of growth hits a tipping point and they no longer truly own their company.

Interesting side note, this is how massive companies with huge market share produce growth. Microsoft, for instance, has as much market penetration as they could possibly have in their core business. They can’t really generate substantial growth in Windows or Office products; they’re already practically everywhere they can be. Instead, Microsoft will become equity investors in smaller, high-growth business, until they can buy them out and grow them sustainably using their huge cash reserves. Some of the businesses they buy are just trying to cash in on this demand for growth, hoping to catch the attention of a whale like Microsoft or Google and be bought out for millions. Others are less willing, and succumb to hostile takeovers due to shortsightedness and necessity.

So what’s the best approach to growth?

There are two concepts that should be considered in every business’s growth strategy: internal growth rate and sustainable growth rate. Both of these terms rely on the company’s plowback ratio or retention ratio, which is simply the amount of their earnings that they reinvest versus distributing. A 75% plowback ratio means that $0.75 of every $1.00 of earnings is put back into the business, and 25% (the payout ratio) is given to investors as dividends.

These definitions are pretty easy to swallow, they’re just not talked about very often because “conventional wisdom” says growth is always good. The internal growth rate is the amount a company can grow using no extra debt of any kind. They grow using only the earnings that they retain. The sustainable growth rate is always higher unless the company is debt free (then the two rates are equal), and is the amount a company can grow while maintaining a constant debt-equity ratio. In other words, if a company has $0.50 of debt for every dollar they have in cash, the sustainable growth rate determines how much the company can invest in “sustainable growth” using the following formula:

Cash for Sustainable Growth = (Earnings x Plowback Ratio) + (Earnings x Debt-Equity Ratio)

Most companies will target this sustainable growth rate, as it doesn’t increase their leverage ratio, and doesn’t require any equity financing (giving up more control). So yes, growth is good, but only if it’s smart and sustainable growth.

On the opposite end of the financing spectrum, companies can also buy back (repurchase) their shares from the market. This is the opposite of equity financing — it’s giving cash to gain increased ownership of the company. Rather than signaling desperation or excessive, unsustainable growth, this action says that a business is becoming mature. In a mature business, control and ownership — which are intangible and conceptual rather than budgetary or operational — are more vital than cash, because the company’s investments are generating enough cash to grow without leverage of any kind.

It’s a good sign if leadership is talking about capital expenditures and revenues growing, and no further financing is being considering, equity or otherwise. It means that the company is still growing, but generating enough cash through operations that they can do it without anybody’s help. They even have enough breathing room to reclaim some ownership of the company. It means they’re not just growing, they’re growing up.

How much money did your company save this quarter? Yes, save, like the way you save money out of your paycheck for emergencies, major purchases, or whatever. No financial-ese, companies save just like people do.

Don’t know? Well here’s how to find out!

First, pull up your company’s balance sheet, one of the 3 key financial statements. This will be available on your company’s investor relations page and most likely other web portals like Yahoo! Finance and Google Finance. The balance sheet can be a little bit confusing. Its purpose is to show that a company’s assets equal their liabilities plus shareholder equity. Assets and liabilities are pretty common-sense terms. Assets are things we own, including cash, money owed to us but not paid yet, inventory, land, equipment, etc. Liabilities are debts, accounts payable, stuff like that. Shareholder equity is a bit more confusing, and has to do with equity financing, stock issuance, and retained earnings (which is totally distinct from profits and cash). Luckily, all we need is the cash balance at the end of the previous quarter, which is usually displayed right at the top:

Then, to see how much we “saved” in the last quarter, take the same line from the following quarterly report:

It doesn’t take calculus to show how much this company saved: the balance at the end of Q3 minus the balance at the end of Q2. $452.8M – $381.6M = $71.2M.

That’s… quite a lot to add to savings in a single quarter. A 20% increase in their corporate vault in a single quarter is quite a good prompt for asking what the plan is for future cash generation, as their analysts did (several times) on the earnings call. But there’s one more thing that’s an even better prompt. How did they utilize same-quarter cash flow?

Free cash flow for the quarter was $75M (shown above). Out of that, $71.2M was socked away, or 95% of same quarter free cash flow. And those numbers are after spending $44M on property, plant, and equipment — regular growth and maintenance kind of stuff. Wow.

By now, previous mini-lessons should have etched the importance of cash and cash flow in your brain, burned it into your retinas, and tattooed it on your knuckles. Today’s lesson is on what you can do with cash when your business is successfully generating it on a consistent basis.

In general, there are only a few options:

1. You could invest back in the business by advertising, buying new equipment, expanding product lines, or upgrading facilities.
2. You could improve the company’s finances by building up savings or paying off debt.

3. You could give back to stakeholders, including employees, shareholders, and local communities.

Option 1 will almost certainly be present in some quantity since it’s part of the regular operational side of the business. As discussed in Where Does the Cash Go?, the cash flow generated by the regular business operations is the fuel for sustainable growth. Whether we’re a giant player saving up to buy a small fry with excellent growth potential, or a mid-size company looking to expand current operations, it’s virtually a guarantee that some of the free cash flow will find its way into improving and expanding current operations.

While reinvestment in the business is virtually a given, the second and third options – improving company finances and various types of distribution back to stakeholders – are illustrative of a company’s financial philosophy and existential mission.

If that sounds a little heavy, well, just trust me, it’s really not. A corporate financial philosophy – an apparent labyrinth of polysyllabic jargon – could come down to something as simple as how much debt your company wants to keep as a percentage of its cash reserves. There are pros and cons of carrying debt as well as being debt free, but the point isn’t to discuss that, it’s to say that your company will employ cash in a way that highlights what they value.

For example, until late 2014, Apple was a debt free company. It wasn’t that they couldn’t get attractive financing or have solid growth opportunities for the money, in fact, they had one of the strongest balance sheets in the history of capitalism and unprecedented returns on capital to prove their investments. They valued being debt free, most likely, because in 1996 the company was on the verge of collapse, and having no debt and huge cash stores is a safety net between the company and that situation ever happening again.

As for giving back or “distributing” the money, that could be paying out bonuses to employees, contributing to charitable causes, or paying dividends to shareholders. Some companies are built with a community or charity-centered vision. Think of TOMS shoes, which was founded on the idea of “one for one,” giving a pair of shoes to a child in need for every pair they sell.

In the end, we have to ask ourselves what the business exists to do. We could pontificate about altruism and the greater good, but all of it is moot if the company doesn’t make money. It exists to create wealth for the people who are invested in it. Invested, in this context, could mean owning shares of the company, but it could also be working there, raising a family in a community where the company is a major presence, or a dozen other non-financial things. But what enables all of those stakeholders to get more out of the company than they put in is the ability of the company to make money.

Profit is just perception, and revenue is irrelevant. What enables a company to grow, to be agile, and to give back to its people is cash. Thinking back on the Enron travesty, they created a lot of faux-wealth by cooking the books on revenue and profit, but the house of cards came tumbling down because the cash wasn’t there. Dividends to shareholders, bonuses to employees, and debt payoff to creditors all signal a company’s strength and determination to not just posture themselves as a wise investment, but to actively and regularly show that they’re worth it.

So in the future, keep an eye on which of these 3 things a company is doing with its cash. It’s the best way to tell not only how healthy the company is, but what its priorities are.

A lot of times in casual conversation I hear revenue, earnings, profit, and even cash used interchangeably. If we don’t know what these things mean, it can look like the health of the business is based on the same crap with different names. So let me quickly break it down.

Let’s imagine that you own a burger joint. In July, customers paid $100,000 for food and drinks. $75,000 of that was paid in cash and credit (money you get immediately), and $25,000 was on tabs that you allow to go unpaid for up to 3 months (this may have been a bad decision by you as a restaurant owner). Your revenue for the month is still $100,000 – in accrual-based accounting, which is the system basically all public companies use, revenue is added as soon as the purchase is made, even if no cash changes hands.

To produce $100k worth of burgers, fries, and shakes, let’s say you had to buy $70k worth of meat, buns, and… whatever milkshakes are made of. That $70k would be your CoGS (cost of goods sold or cost of sales). Then you paid your employees, paid the mortgage, utilities… the stuff that you had to do to make and sell burgers, and it ran you another $15k for the month. That would be your SG&A (selling, general and administrative). Take those costs out of your revenue, and you have your operating income, or EBIT (earnings before interest and taxes). This figure represents money made from your core business of turning money into raw materials, then into burgers, and hopefully into more money than you started with. This number reflects the strength of the business model and the efficiency of your business at producing goods. So our revenue is $100k, and our EBIT (operating income) is $15k ($100k revenue – $70k cost of sales – $15k selling and general = $15k operating income).

Now, some of you see where I’m headed with this. Although you made a healthy 15% operating margin last month, you’re cash negative! Remember, you only collected $75k in cash from your customers, but paid $70k for “raw materials” (burger pun) and $15k for SG&A, so you’re actually $10k short on cash for the month, in spite of making good “profit”! This doesn’t mean you’re a bad burger joint owner, in fact quite the opposite. Revenue is good meaning there’s demand for your product, and profits are good meaning you don’t suck at your core business. It just means you have room for improvement in a very specific area. Maybe we should cancel that policy of letting tabs go unpaid for three months and see if we can get cash positive!

Cash is one of the easiest things to let slide in a growing business, but it’s always the most important thing. Not having enough cash could mean not being able to pay employees, fix critical machinery and facilities, or obtain materials. Extra cash means you can be agile… able to make further investments in growth, able to pay back investors and creditors, or able to take some extra money home. Back to burgers, with $15k positive cash instead of $10k negative, we could, say, buy a new grill, hire an extra cook, save up to open another location on the other side of town, or just celebrate and take some cash out of the business for ourselves. Cash gives you options. We like options.

Of course, this is just an example to illustrate what the concepts mean. Most very small businesses will use “cash basis” accounting rather than “accrual basis,” which means they track their profits and cash much like a household — at the end of the month, do you have more or less than when you started? But it gets considerably more complex as the business grows. Most of the companies we cover, it makes sense to use accrual basis. To use some of our charter companies as examples, it makes sense for Spirit AeroSystems to amortize material and machinery costs as the materials are consumed, as they may be bought months or even years before they’re used. It makes sense for Netflix to spread licensing costs over the time they’re used rather than all at once, because it’s a better reflection of the ongoing business. When payments in, payments out, one-time purchases, and long-term contracts collide, it gets very easy to lose track of how much we actually make, how much we actually have, and where we can stand to improve our policies and practices. Accrual-basis makes more sense in that case, but it sure isn’t easy!

You can tell a company’s problem areas by the numbers. If they have low revenues, it might indicate low demand for their products. If revenue is good but profits aren’t, they probably have operational problems and inefficiencies. If they have good profits but no cash, they might be growing too fast or having trouble collecting payments on-time. Next time you listen to an earnings call, see which of these areas the questions focus on. It’s a good indicator of the health of the business, and it’s consistent across all industries and companies.

So, you’re here on QuarterSense to learn, and our goal is to help you with that. But on the first lesson it should be pointed out that becoming a pro at this stuff isn’t a cakewalk! This is what accountants are paid for, to sort out all of this complexity and make it (relatively) easy to get a snapshot of the business from a few pages. And it’s what executives command high salaries for — not everybody can interpret the numbers, see the problems, come up with actionable policies to fix the problems, and iterate on those policies until the numbers improve… all while managing the strategic direction of the company for the present and future. If it was easy, we’d just keep a corporate bank account and hope it went up over time.

Imagine some kids in your neighborhood got an entrepreneurial bug and wanted to start a lemonade stand. Well, for a child, a lemonade stand is a high capital business. They don’t have the money to buy 2×4’s to build the stand, the lemons and sugar to make their delicious beverage, or the cups to contain their tasty treat as they deliver it to their customers. They’ll probably turn to a parent to do the initial financing. In return, the stand would owe some of their profits back to the investor — dad can’t just shell out seed capital for a business without some promise of return. So the parent buys $20 worth of supplies to get the venture started, and the kids are off on their capitalist adventure.

The kids spend $10 to build the stand itself and the remaining $10 on supplies. After a weekend, they’ve had incredible success; their mix is just right and everybody in the neighborhood wants some! At $1 a cup, they’re able to sell 40 cups of lemonade — $40 generated from an initial investment of $10 (the $10 for the stand is property, plant, and equipment; this $10 is cost of goods sold). They write down their revenues ($40) and net income ($30), and then they come to their cash flow. Weeeeeell, some of the other kids in the neighborhood didn’t have $1 on hand, so they opened an IOU account. Some offered payment via trades in other goods (are baseball cards still valuable?) or services. When the lemonade stand owners count up their money at the end of the weekend, they find they only have $4, despite being massively “profitable.”

But that’s okay! They’re showing big profits and believe they can profitably expand the business, they’re just in a little cash crunch. They approach their investor again, show them the big profits, and tell them about their plans to continue and grow the core business. They’ve even thought about expanding into new business areas, like offering iced tea or building another stand in the next neighborhood over! This time, the investor raises a little eyebrow and wonders where the money went, but saw them selling lots of lemonade and still believes in the venture, so they offer some more financing… maybe at a higher interest rate though.

You can see where this is going, I’m sure. Without the cash flow to reinvest in the core operations, expand the business, and pay back investors, that investment money is going to dry up or come with major stipulations. Venture capitalists know how this process goes and take advantage of it. They’ve got the capital, and after a few cycles of fund requests, will tack on the condition that they’ll continue to invest but only if they gain an equity share in the company. In the end, they can acquire or control the business and turn it into a cash-generating machine once the owner is gone. This is also why large, mature firms will buy out smaller firms with growth potential. The large firms have cash but little opportunity for growth, and smaller firms are growth monsters but have no cash.

In short, the mark of a maturing business is sustainable free cash flows and balanced growth. Contrast this with fledgling businesses who have explosive growth opportunities but low liquidity. In one of his last quarterly meetings as CEO of Spirit AeroSystems, Jeff Turner mentioned that he believed they were positioned well and their programs were good ones to be on, but that they had expanded too quickly. Aha. Too much growth, too little cash. The replacement CEO’s primary focus became fixing that imbalance not only by tightening costs, but by reducing exposure to what he felt were less lucrative ventures, such as a lagging business center in Tulsa, OK. The “transition” the new CEO kept on about in his first months was to restore balance to the force growth and cash flow portions of his company by actually slowing down growth to get in a more favorable cash position.

A wise goal. It’s a cute lesson when your neighborhood kids run out of cash to buy lemonade, but it’s a little less cute when it’s a multi-billion dollar company.