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Use to find companies where this pattern is active.
Three income-statement observations align: gross profit decreased year-over-year over the trailing four years, net income decreased year-over-year over the trailing four years, and operating margin in the most recent year is still at an elevated level. The picture is a still-high-margin business seeing gross profit and net income contract.
State
Gross profit decreased year-over-year, net income decreased year-over-year, and operating margin is still at an elevated level
Emergence
Three income-statement observations align on a high-margin business in decline. Gross profit has decreased year-over-year over the trailing four years, net income has decreased year-over-year over the trailing four years, and operating margin is still elevated in the most recent year (the formula fires on a margin level of roughly 35% or higher). The composition note: a still-high-margin business is seeing gross profit and net income decline — pressure on a high-margin base, even while the absolute margin level remains elevated.
Limits
This interpretation identifies a directional pattern on a high-margin business, not business failure or investment timing. The 'margin-delta' obs is a single-year level measurement (operating_income / sales), not a directional delta. The gross-profit and net-income decrease counts record decreases with no claim about cause. It does not predict continued decline, assess whether margins will stabilize, or indicate whether current levels are sustainable.
Explanation
Each observation describes a distinct facet of the pattern: Gross Profit Decreased Year-Over-Year (4 years) indicates gross profit has fallen year-over-year over the trailing four years. Net Income Decreased Year-Over-Year (4 years) indicates net income has fallen consistently. Operating Margin Level is high — the most recent year's operating margin is in the upper range (firing requires roughly 35% or higher). When all three align, a still-high-margin business is seeing gross profit and net income decline. The observations do not predict whether the decline continues or whether the high-margin level will eventually erode.
Interpretation
This interpretation identifies a directional pattern on a high-margin business, not investment timing. It does not predict continued deterioration, assess whether margins will stabilize, or indicate whether current levels are sustainable. Margin pressure on a high-margin base can be temporary or cyclical.
Required Observations
Gross Profit Decreased Yoy 4y
Gross profit has decreased year-over-year across the most recent 4 fiscal years.
Margin Delta
Operating income as a fraction of revenue
Net Income Decreased Yoy 4y
Net income has decreased year-over-year across the most recent 4 fiscal years.