Every industry is different: 7 case studies
Companies in different industries face completely different problems. To understand a company, you first need to understand the game its industry plays.
The tools from the earlier lessons work everywhere, but what they mean changes from one industry to another. A 3% profit margin is excellent for a supermarket and alarming for a software company; a debt level that is normal for a bank would sink a restaurant chain. Here are seven industries, each with a well-known company, the numbers specialists watch, and the problems that industry faces.
How hard each industry was hit in its worst recent year
Change in revenue vs the previous year, in each company's toughest recent year (rounded, from annual reports). Different industries, different shocks.
JPMorgan Chase analyze JPM →
How it makes money: borrows cheaply from depositors and lends at higher rates (net interest income), plus fees from cards, investment banking, trading and wealth management.
📏 The numbers that matter here
- Net interest margin: interest earned minus interest paid, as % of loans.
- Loan losses (provisions): money set aside for borrowers who will not repay.
- CET1 capital ratio: the bank's own capital vs its risky assets; regulators set minimums.
- ROE and price-to-book: the main valuation tools for banks.
⚠️ This industry's own problems
- A recession raises loan losses.
- Interest-rate changes can hurt the value of the bonds and loans it holds.
- Confidence is everything: if depositors panic, they can withdraw money faster than any bank can repay (a "bank run").
Careful with the usual ratios: deposits are the bank's raw material but count as debt, so debt/equity of 10x is normal. "Revenue", EBITDA and EV/EBITDA are not meaningful for banks.
Real story: in March 2023, customers of Silicon Valley Bank tried to withdraw about $42 billion in a single day after news of losses on its bond portfolio. The bank failed within 48 hours.
Microsoft analyze MSFT →
How it makes money: sells software licences and subscriptions (Microsoft 365, Azure cloud). Making one more copy of software costs almost nothing.
📏 The numbers that matter here
- Gross margin: around 70% at Microsoft; pure software businesses are often 75–90%.
- Recurring revenue (subscriptions, ARR) and customer retention.
- R&D as % of revenue: the cost of staying ahead.
⚠️ This industry's own problems
- Competitors can appear quickly; technology shifts (e.g. AI) can make products outdated.
- Stock-based compensation: paying staff in shares costs no cash but dilutes owners.
- Cloud businesses now need huge data-centre investment, so capex is rising.
Careful with the usual ratios: high P/E ratios are common because profits can grow without much new capital, but they assume that growth continues.
Real story: Microsoft moved Office from one-time licences to Microsoft 365 subscriptions in the 2010s; revenue became more predictable and customers rarely leave.
Walmart analyze WMT →
How it makes money: buys goods in enormous quantities and resells them at low prices: a small profit on each item, multiplied by huge volumes.
📏 The numbers that matter here
- Net margin: only about 2–3% for big grocery retailers.
- Same-store sales growth: growth from existing stores, excluding new openings.
- Inventory turnover: how fast goods are sold.
- Working capital: large retailers often sell goods before they have to pay suppliers, so suppliers partly finance them.
⚠️ This industry's own problems
- Price wars and online competition.
- Wages and rents: a small rise in costs can wipe out a thin margin.
- Unsold stock that must be discounted.
Careful with the usual ratios: a low net margin is not a sign of weakness here. Asset turnover and return on capital matter more.
Real story: in its Covid fiscal year (to January 2021) Walmart's sales grew about 7%, as people stocked up on groceries, while many other shops were closed.
ExxonMobil analyze XOM →
How it makes money: extracts oil and gas, refines them into fuels and makes chemicals. The selling price is set by world markets, not by the company.
📏 The numbers that matter here
- Oil and gas prices: the biggest driver of profits.
- Production (barrels per day) and reserves (how many years of production remain).
- Break-even price: the oil price needed to cover costs and dividends.
- Capex: projects cost billions and take years.
⚠️ This industry's own problems
- Prices can halve in months.
- Fields deplete: the company must keep finding new oil just to stand still.
- The energy transition and climate regulation.
Careful with the usual ratios: a low P/E at a time of high oil prices can be misleading, because earnings are at a peak (see the economic cycle lesson).
Real story: ExxonMobil lost about $22 billion in 2020, when lockdowns crushed fuel demand, then earned a record of about $56 billion in 2022 after prices soared.
Pfizer analyze PFE →
How it makes money: researches, tests and sells medicines protected by patents, which give about 20 years of exclusivity from filing. After that, cheaper generic copies arrive.
📏 The numbers that matter here
- R&D as % of revenue: often 15–25%.
- The pipeline: drugs in clinical trials (most fail).
- Patent expiry dates of the best-selling drugs ("patent cliff").
⚠️ This industry's own problems
- A trial failure can erase years of spending.
- Government pressure on drug prices.
- Revenue can fall sharply when a key patent expires or a one-off product fades.
Careful with the usual ratios: one exceptional product can distort every ratio for a couple of years.
Real story: Pfizer's Covid vaccine and treatment lifted its revenue to about $100 billion in 2022; as demand faded, revenue fell to about $58.5 billion in 2023.
Delta Air Lines analyze DAL →
How it makes money: sells seats and carries cargo. Aircraft, staff and airport slots are expensive whether planes fly full or empty.
📏 The numbers that matter here
- Load factor: % of seats filled.
- Revenue and cost per available seat-mile (RASM vs CASM).
- Fuel cost: often a fifth to a third of operating costs.
- Debt and leases on aircraft.
⚠️ This industry's own problems
- Very high fixed costs: a small drop in passengers hits profit hard (operating leverage).
- Fuel prices, strikes, accidents, pandemics.
- Intense price competition.
Careful with the usual ratios: aircraft leases are a form of debt; check them alongside reported borrowings.
Real story: Delta's revenue fell from about $47 billion in 2019 to about $17 billion in 2020 (−64%) when the pandemic grounded flights.
Hidroelectrica analyze H2O.RO →
How it makes money: produces and sells electricity. Demand is steady; in many countries prices or returns are partly regulated by the state.
📏 The numbers that matter here
- Generation volume (TWh) and the electricity price.
- Regulated asset base and allowed return (for regulated networks).
- Dividend yield: utilities often pay out most of their profit.
- Debt: power plants and grids are financed with long-term loans.
⚠️ This industry's own problems
- Regulation and political decisions (price caps, special taxes).
- For hydropower: rainfall and river levels determine how much can be produced.
- Rising interest rates make the heavy debt more expensive and dividend shares less attractive.
Careful with the usual ratios: high debt is normal because cash flows are stable, and growth is usually slow, so a high P/E is rare.
Real story: during the 2022 European energy crisis, governments, including Romania's, introduced price caps and extra taxes on energy producers.
Summary: same tools, different meaning
| Industry | Main driver | Key number | Main risk |
|---|---|---|---|
| 🏦 Banks | Interest rates, lending | Net interest margin, CET1, P/B | Loan losses, bank runs |
| 💻 Software | Subscriptions | Gross margin, retention | Disruption, dilution |
| 🛒 Retail | Volume, efficiency | Same-store sales, inventory turnover | Thin margins |
| 🛢️ Oil & gas | Commodity prices | Production, break-even price | Price crashes, depletion |
| 💊 Pharma | Patents, research | Pipeline, patent expiries | Trial failures, patent cliffs |
| ✈️ Airlines | Travel demand, fuel | Load factor, RASM vs CASM | Shocks, fixed costs |
| ⚡ Utilities | Regulation, weather | Volume, allowed return, dividend | Politics, interest rates |
Before judging any company, ask: what industry is it in, and what numbers do specialists in that industry look at? Then open it in the analysis section and compare it with its own history.
Show the answer
No. For a bank, deposits count as debt, so high leverage is normal (regulators check its capital ratios instead). For a restaurant chain, 9x debt to equity is extreme: a few bad months could make it unable to pay its lenders.