Manufacturing

A manufacturing business converts raw materials and components into finished goods. Revenue comes from the spread between production cost and selling price, and the model is defined by capital intensity, unit economics, and control of the supply chain.

Investors focus on gross margin, capacity utilisation, inventory turns, and how exposed the business is to input cost and logistics volatility.

Revenue comes from selling produced goods at a price above fully loaded production cost. Profitability turns on capacity utilisation: fixed costs are absorbed across output, so a plant running near capacity behaves very differently from the same plant running half full.

• Gross margin and its sensitivity to input costs
• Capacity utilisation
• Inventory turns and days of inventory held
• Order backlog and book-to-bill ratio
• Defect and rework rates

Consistently high capacity utilisation with a visible order book. Gross margin that holds through input cost swings, evidencing pricing power or hedging discipline. Fast inventory turns. Customer concentration low enough that losing one account is survivable.

• Contract manufacturing — producing to another company's specification
• Original equipment manufacturing — components sold into finished goods
• Private label — produced for a retailer's own brand
• Vertically integrated — production plus direct distribution

• What is current capacity utilisation, and what does full capacity require?
• How exposed is gross margin to input cost movement?
• How concentrated is revenue among top customers?
• What is the order backlog and book-to-bill ratio?
• What capital expenditure is needed over the next three years?