Inflation,Inflation, Inflation ...

It is important when evaluating a potential investment or when building a business to ensure

that either has the ability to keep up with inflation.

Case in point ...

In 1955 a McDonald's hamburger cost $.15. In 2011 it cost $.95. A Coke cost $.05 in 1950 and approximately $1.00 (depending on location) in 2011. Believe it or not, a ticket to Disney World cost $3.50 in 1971 and $80.00 in 2010.

So What

A company with the ability to increase prices along with inflation benefits when shares outstanding stay the same or are bought back (earnings per share go up in both cases typically) of if they have long term fixed debt (the interest payments remain the same while revenues increase.)

Small businesses typically benefit in the fixed debt scenario; a business has long term fixed debt, as prices inflate, revenues increase and the business is able to pay off the long term debt with inflated dollars. In other words, the business is receiving more bucks but the debt payment i

s remaining the same.

In the static or reduced share scenario, a business earns more, again through inflated prices, the number of shares outstanding remain the same or shrink via buyback, and the shareholder benefits via an increase in earnings per share.

All of the above as opposed to price competitive industries in which companies have to fight it out price-wise in order to eek out a slim profit. (think aluminum, oil, steel.)

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For more information, check out my first book, My Happy Assets at http://www.myhappyassets.com/ and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a Successful Business at http://www.smallbizcoffee.com/. Both are also available at lulu.com. Happy Reading!

Also be on the lookout for my fourth book due out in February 2012 by Wiley. To stay tuned in go to http://www.facebook.com/myhappyasset and "like" away.