Is PHG Able to Sustain its Profitability?

Shares of Large-cap X-Ray Apparatus & Tubes & Related Irradiation Apparatus company Koninklijke Philips were up 1.63% during today's afternoon session, as the S&P 500 posted a 0.61% change. Today's upwards movement shows that investor interest in PHG stock is strong -- but how closely have they studied the company's margins?

While Koninklijke Philips's gross margins for the last year are positive, we are concerned that the company's operating margins are in the red. Gross margins take into account only the cost of revenue, or variable costs -- meaning the cost directly associated with producing the products or providing the service offered by the company.

Operating margins, on the other hand, take into account the company's overhead as well. Overhead, also called fixed costs, includes the company's rent, salaries for personnel not included in cost of revenue, equipment and supplies, amortization, and depreciation. Operating margins tell you about how efficiently Koninklijke Philips is run, and gross margins tell you how profitable its product line is.

Date Reported Revenue (k) Cost of Revenue (k) Gross Margin YoY Growth
2022-12-31 $17,827,000 $10,633,000 40.35% -3.42%
2021-12-31 $17,156,000 $9,988,000 41.78% -7.05%
2020-12-31 $19,535,000 $10,754,000 44.95% -1.32%
2019-12-31 $19,481,000 $10,607,000 45.55% -3.5%
2018-12-31 $18,121,000 $9,568,000 47.2% n/a

Koninklijke Philips's gross margins are currently in the green, but this might not be the case for long. Since its cost of revenue is growing at a rate of 2% compared to -0.1% for its revenues, its gross margins have been shrinking -3.06% on average each year.

Date Reported Revenue (k) Operating Expenses (k) Operating Margin YoY Growth
2022-12-31 $17,827,000 $7,365,000 -8.58% -366.46%
2021-12-31 $17,156,000 $6,663,000 3.22% -59.19%
2020-12-31 $19,535,000 $7,120,000 7.89% -6.52%
2019-12-31 $19,481,000 $7,226,000 8.44% -11.06%
2018-12-31 $18,121,000 $6,914,000 9.49% n/a

Despite the negative operating margins in the last year, Koninklijke Philips's average is still positive, indicating that the company is generally profitable. There's a red flag, however, indicating that the last year could be part of a negative trend. Koninklijke Philips's operating expenses are growing at an average rate of 1.43%, whilst its revenues are growing at only -0.1%.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.