Are large companies more profitable than small ones?
"There is no general theory to support the notion that larger companies will be more profitable than smaller companies.  Economies of scale are not always positive, one can have diseconomies of scale too.   It is more common to talk about an optimal firm size, even going back to Stigler's (1958) ""The Economies of Scale.""  Intuitively, if economies of scale extended indefinitely, then natural monopolies would dominate all industries in the long run. A profit ratio, unfortunately, wouldn't quite get at scale economies.  Consider, for example, that the denominator of your metric would be profit+cost and that you are trying to get at the cost reduction that derives from scale.  Then, you are measuring the size of a company by the exact metric that should be reduced if scale economies exist, so the calculation would be a bit confounded. It is my understanding that such assessments are usually conducted at the industry level by determining whether the industry is becoming increasingly concentrated among fewer firms over time. (Again see Stigler).   If concentration is increasing, there is an implication that, at current firm sizes, there are economies of scale in the industry." "This isn't as rigorous as it should be, but may offer some useful insight into how big and small companies differ operationally. Putting Apple aside, larger companies tend to sell larger volumes of products (even if they're MRI devices, or turbines) relative to what smaller companies can sell (obviously, in absolute terms as well).  They are also able to negotiate volume discounts as well as payment terms.  This allows them to finance sales through their supply chain.  However, their large direct competitors are able to do the same thing as well.  Competitive forces then drive prices down. Smaller businesses, without these advantages of scale, tend to have to charge higher margins since they have to pay directly (and, if their clients are large businesses, finance the sale). Small businesses still have higher proportional costs of operation.  Sadly, my reference here is a study I performed for the South African Revenue Service about ten years ago, and not available online. However, the time taken by a small business to manage admin, tax, HR is a greater proportion of revenue than for larger companies. If the small business is a start-up with big investment from venture finance, then they could subsidise their selling price, run at a loss and try and gain scale.  Funnily enough, there is a fantastic article on this by Joel Spolsky (Ben and Jerry's vs. Amazon) For the average highly-competitive smaller company, the best choice is to chase design/quality/premium markets in order to justify the higher margins they have to charge.   And that's what makes Apple interesting as a case study.  They were a small company in the presence of giants (Intel, Microsoft, IBM).  They were ""forced"" to concentrate on design and premium markets in order to justify their need for higher margins.  It almost didn't work but then they broke through.  Now they're in the unique position of having gained scale but are still small enough relative to other electronics manufacturers to continue charging that premium (by volume their sales are still relatively small but their margins make them a giant). This type of variation from market to market makes developing some sort of generalised solution very unlikely but the general requirement holds: that smaller companies must charge higher margins in order to create equivalent profits to larger companies which must gain scale through volume." Small companies could have growth prospects. Large companies may not have that many. So look at ROE of companies by quatile to determine which companies have better growth.
I agree, I am a small business owner.  But my original point is that companies large and small got to pay low rates for almost a decade now.   And they profited from it.   economics tell you that it will swing back eventually.   Conceptually you may have to pay more, you may have to charge more, but your clients are probably making more. Twitter (and Facebook) are media companies. They make money selling (user generated) content to advertisers. To do this affectively, they need people on the ground in each market who speak the language and know the local customs.  If your question is why don't they make larger profits, is this their focus? Growth is THE major factor in stock price for a startup / newly floated company. In the scenario you describe, the first thing I would look at would be liquidity.  In other words, how easy is it to buy and sell shares.  If the average daily volume of one share is low compared to the average daily volume of the other, then the more actively traded share would be the more attractive.  Low volume shares will have larger bid-offer spreads than high volume shares, so if you need to get out of position quickly you will be at risk of being forced to take a lowball offer. Having said that, it is important to understand that high yielding shares have high yields for a reason.  Namely, the market does not think much of the company's prospects and that it is likely that a cut in the dividend is coming in the near future. In general, the nominal price of a share is not important.  If two companies have equal prospect, then the percentage movement in their share price will be about the same, so the net profit or loss you realise will be about the same. The parent company is likely to own other assets, which can be badly performing. Spinoffs are typically the better performers. There are also other factors, for example certain big funds cannot invest in sectors like tobacco or defense and for conglomerates it makes sense to spin those assets off to attract a wider investor audience. There are many reasons but perhaps the most telling is that these small foreign companies usually have not experienced diminishing marginal returns. This means they grow faster, which means higher returns for investment. However a lack of infrastructure, and of political and economic stability, make these investments risky! "The ""coin flip"" argument made in the article is absurd.  My old boss had a saying, ""the harder I work, the luckier I get.""  He came from nothing, worked maniacally to become an Olympian, and later in life became a multi-millionaire.  This is a common story among self-made people.  I DO think that the rich have significant advantages:  education, contact networks, access to startup capital, etc.  These are very helpful, but don't assure success.  Their lack is not insurmountable by the ambitious.  I also think those advantages have expanded in recent years.  Monetary policy has resulted in a large pool of investable funds being made available to to the financial sector, who earn high incomes with rent-seeking tactics." To build off of this, they also generally have logistics and distribution in place already. When a smaller company makes a product that people can't get enough of, the small company has problems scaling up fast enough.  The big company has scale, the small company has the right product. Put them together, and 1+1=3 Market capitalization is one way to represent the value of the company. So if a company has 10 million shares, which are each worth $100, then the company's market capitalization is 1 billion. Large cap companies tend to be larger and more stable. Small cap companies are smaller, which indicates higher volatility. So if you want more aggressive investments then you may want to invest in small cap companies while if you lean on the side of caution then big cap companies may be your friend. In a well-managed company, employees bring more dollars to their employers than the employers pay the employees (salary and benefits).  Employees trade potential reward for security (a regular paycheck).  Employers take on the risk of needing to meet payroll and profit from the company's income, minus expenses. The potential rewards are much higher as an employer (self or otherwise), so the ones that do make it do quite well.  But this is also consistent with your other statement that the reverse is not true; the risk of self-employment is high, and many self-employed people don't become millionaires. This is an interesting discussion. I've never been a part of a large corporation, but aren't these functions good for morale. If they gripe about saving money, and then cut all the employees functions becoming the most uncaring and dispassionate company in all of companydom, wouldn't that also kill productivity? I think it's safe to say that Apple cannot grow in value in the next 20 years as fast as it did in the prior 20. It rose 100 fold to a current 730B valuation. 73 trillion dollars is nearly half the value of all wealth in the world.  Unfortunately, for every Apple, there are dozens of small companies that don't survive. Long term it appears the smaller cap stocks should beat large ones over the very long term if only for the fact that large companies can't maintain that level of growth indefinitely.  A non-tech example - Coke has a 174B market cap with 46B in annual sales. A small beverage company can have $10M in sales, and grow those sales 20-25%/year for 2 decades before hitting even $1B in sales. When you have zero percent of the pie, it's possible to grow your business at a fast pace those first years. It depends on which of the big4. Some of them have more revenue and profit from consulting than from audit. Specifically, some of the big4 have failed at growing their consulting business to be competitive with the consulting arms of other firms and/or sold off their consulting groups and are in the process of rebuilding. Of course you wouldn't, and of course data is incredibly important.  What I'm saying is that you at least have access to rudimentary data about what people are interested in, public data sources, etc that didn't even exist in the past.  In the past, small businesses were flying incredibly blind.  The data small businesses do have access to today didn't even exist except in either very expensive data collection firms or in hard to get physical records in the past.  A small company is never going to have the resources of a large one - at any point in history Of course it's more difficult to grow profits now after they've been having record profits. It's hard to beat the record. Their strategies have been cut salaries in exchange for lowering costs and making higher profits. But when EVERY company cuts salaries, who is left with enough disposable income to buy the products? And the truth of the matter is that the majority of entrepreneurs are rich only because they are lucky.  Strangely none of them are prepared to admit this either.  See if you throw enough mud at a wall, eventually some of it will stick. And if 20,000 people start a business, then most will fail, but some will succeed, and some will go through the roof.  The business acumen of the directors is sometimes capable of making a business MORE successful than it otherwise would be, but mostly, it's down to luck.