Peter:
I apologize for suggesting you do not understand accountancy; although your
comments below continue to suggest a misunderstanding, but perhaps that is
a cultural issue.
Amortization is recovery of the cost of building the depot; depreciation is
a cash charge to assure that at the end of the asset’s life you have funds
to replace it. Both are required costs of business and collecting them is
not fraud.
I concur that your new, smaller depot would be able to sell propellant for
more that it costs to put the same propellant in orbit in a fueled upper
stage. As an investor, I do not buy that you uniquely are going to get a
special discount in order to make your business plan close. To that sort
of nonsense I call “bullshit”.
I have previously agreed that in some SiFi fantasy future there might be a
market for a fuel depot; I here repeat that agreement.
I have also previously observed that simply building a fuel depot assures
failure: there is no demand for depot expensive fuel in a world where upper
stages are always launched nearly fully fueled. Since that is our world, I
continue to see no reason to build a depot today.
Bill
On Fri, Aug 30, 2019 at 7:51 AM Peter Fairbrother <peter@xxxxxxxxxx> wrote:
On 29/08/2019 22:47, William Claybaugh wrote:
Robert:lack of business experience does not make his numbers plausible:
All companies have G&A, overhead and profit expenses, without exception
(not for profit organizations of course do w/o the profit). > Peter’s
I know nothing about US Government contracts, but I do have a Diploma in
small business studies from Plymouth University, and I have started and
run several small to medium businesses, only one of which (the first,
many moons ago - and we didn't lose the capital) went bust when under my
control.
In businesses accounting in the UK we don't usually split things up
quite like that (think eg fixed vs variable costs), but I'll try.
as modeled, Peter’s depot will be quickly bankrupt because he is
charging a price for fuel that is way below the company’s actual costs.
Eh? I included the actual costs plus a 100% profit margin on those costs.
I also included an extra 5% markup to account for propellent stock
capitalisation plus profit. I'd guess your G&A might fit in there.
However, here's a quick P&L forecast for a slightly different depot. It
has a sales rate equivalent to 10 x 50,000 lb Falcon launches per year.
One small change - I'll use $1,000 per lb for fuel in tankers in LEO
rather than $1,300. That's $50 million per Falcon 9 launch rather than
$65m.
I'd expect Elon would give a small discount for quantity and low
payload-related expenses and a looser attitude to reliability and a
looser schedule.
Plus of course the depot might collect and return Elon's second-stage
engines and electronics in bunches of say 5 or 10 ...
Depot: 50,000 lb
Capacity: 250,000 lb
Annual Sales: 500,000 lb
Annual P@L, USD millions
Sales [1] 620
Cost of stock [2] 500
-----
Gross profit on sales 120
Capital costs of depot [3] 25.5
Depot operating expenses [4] 10
Capital costs of stock [5] 12.5
G&A [6] 15
---
63
-----
Net profit 57
[1] 500,000 lb @ $1,240 per lb
[2] 10 Falcon launches @ $50 million per 50,000 lb launch
[3] William apparently charges both amortization and depreciation (is
that fraud?); I'll use $100 million, 50,000 lb @ $2,000/lb, repayment
over 5 years @10% compounded annually
[4] complete swag
[5] average half full, $125m at 10% bank overdraft (the usual
arrangement for eg oil etc in tank farms, but at a higher rate to allow
for higher risk),
[6] 30% of operating costs?
The price now is $1,240 per lb. That is quite a bit more than $1,000 per
lb. But for many fractional loads it would still make sense, and then
there is the advantage of not needing rendezvous or fuelling hardware.
And if we get the quantity discount and others do not, it is actually
cheaper than the $1,300 per lb others might pay for a single quantised
tanker load. :)
ROI - the 5-year simple (uncompounded) ROI on an investment of $125m is
(5.(57 + 25.5)-125)/125 = 230% or 46% pa.
I know these are very basic figures, and I would not build a business on
them, eg they do not include building time or insurance or accounting
for losses - but then a tanker system would need most of those too.
However they are actual figures, which you asked for. According to them
a depot could sell propellent at about $1,240 and make a decent profit.
At your pricing - what is it, about $2,500-$3,000? - well, I expect you
couldn't sell enough to make a profit.
Things like allowing 100% of goods-for-sale-price for overhead might
make sense in some businesses, but they are completely inappropriate in
others. They are particularly useless when you are considering a new
type of business, because you don't know the norms.
- eg if I buy a house and sell it to you I am happy with a 10% margin,
if I sell you a pint of milk in a supermarket I require about 20%, if I
sell the same pint of milk in a corner shop I need about 50%, if I sell
you a pint of beer in a pub I expect about 300%, if I sell pins on the
internet I require about 2,000% margin to cover postage
- a reasonable and profitable margin should be based on what you
actually have to pay for in terms of expenses and payments you have to
make, the work you do and the risks you take, not solely based on a
percentage of original price.
Peter Fairbrother
